Chapter 6 Problem Set

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Question #1

A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, “How many of you will transfer to another university because of the increase in tuition?” One student in about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is:

A highly elastic.

B 0

C highly inelastic.

D 1

Question #2

The price elasticity of demand can be found by:

A measuring absolute changes in price and quantity demanded.

B comparing the percentage change in quantity demanded to the percentage change in price.

C examining only the slope of the demand curve.

D knowing that when price changes, quantity demanded goes in the opposite direction.

Question #3

The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the price rises to $7, consumers will decrease consumption to 4 notebooks. Using the midpoint formula, what is the price elasticity of demand for notebooks?

A 3

B 0.17

C 0.33

D 6

Question #4

A good is likely to have an inelastic demand curve if:

A the good has few available substitutes.

B the consumer has significant time to respond to the price change.

C the good accounts for a large share of consumer income.

D the good is a luxury.

Question #5

The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5% in a period, all other things unchanged, demand will:

A decrease by less than 5.7%.

B decrease by more than 5.7%.

C increase by more than 5.7%.

D increase by about 2.9%.

Question #6

If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:

A 1

B 0.75.

C approximately 1.33.

D approximately 0.33.

Question #7

If a change in price causes total revenue to change in the same direction, we can conclude that the demand is:

A price elastic.

B zero elastic.

C price inelastic.

D price unit-elastic.

Question #8

Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. According to this finding, the price elasticity of demand for gas is:

A 2

B 0.2.

C 5

D 0.5.

Question #9

There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, all other things equal, you would expect the demand for:

A Bayer aspirin to be more price-elastic.

B the two to be equally price-elastic.

C Bayer aspirin to be more price-inelastic.

D medical exams to be more price-elastic.

Question #10

Since the price of walnuts increases as the demand for cashews increases, we can assume that these two goods are:

A inferior.

B substitutes.

C superior.

D unrelated.

Question #11

Demand and Price Elasticity

Price — Quantity Demanded per Period
$2.50 — 0
2.25 — 25
2.00 — 50
1.75 — 75
1.50 — 100
1.25 — 125
1.00 — 150
0.75 — 175
0.50 — 200

Look at the table Price Elasticity. What is the price elasticity of demand between $1.50 and $1.25?

A 1.22

B 1.5

C 1

D 1.75

Question #12

The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation’s fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged?

A Total revenue will fall.

B The information is insufficient to answer the question.

C Total revenue will remain unchanged.

D Total revenue will rise.

Question #13

Suppose the price of university sweatshirts increases from $10 to $20 and the quantity supplied increases from 20 to 30. The price elasticity of supply, using the midpoint formula, is:

A 1.66.

B 0.66.

C 1.50.

D 0.60.

Question #14

If the price of chocolate-covered peanuts increases and the demand for strawberry licorice twists increases, this indicates that these two goods are:

A complementary goods.

B normal goods.

C substitute goods.

D inferior goods.

Question #15

A men’s tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is:

A greater than 1 but less than 3.

B greater than zero but less than 1.

C equal to 1.

D greater than 3.

Question #16

Suppose that an increase in the price of a good leads to an increase in total revenue. Ignoring other factors (like supply), at its current price the good must be:

A inferior.

B price-inelastic.

C perfectly price-elastic.

D price-elastic.

Question #17

The price elasticity of demand along a demand curve with a constant slope:

A is greater than the slope.

B is equal to the slope.

C is less than the slope.

D decreases in absolute value as quantity demanded rises.

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Chapter 6 Problem Set

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