Chapter 4 practice questions Spring2008 Malla ... - Classes at U. of L.

Chapter 4 practice questions Spring2008 Malla/Davidson
1) The price elasticity of demand equals the magnitude of 1) _______
A) the percentage change in the quantity demanded of a good divided by the percentage change in its price.
B) the slope of the demand curve.
C) the inverse of the slope of the demand curve.
D) the percentage change in the price of a good divided by the percentage change in the quantity
demanded.
2) The price elasticity of demand for oranges ________ change if the units of the quantity were changed
from pounds to kilograms and ________ change if the units of the price were changed from dollars to
cents. 2) _______
A) would not; would B) would not; would not
C) would; would D) would; would not
3) Suppose the quantity of gasoline is measured in litres and the price of gasoline is measured in dollars.
The price elasticity of demand is 0.67. If the price of gasoline was now measured in cents rather than
dollars, the price elasticity of demand would be 3) _______
A) 0.67. B) 0.0067. C) 67.0. D) 6.7.
4) Because of an increase in the price of leather, the average price of a pair of women's dress shoes
increased 12 percent. If the price elasticity of demand for women's dress shoes is 0.85, which of the
following will happen? 4) _______
A) Women will decrease the number of pairs of dress shoes they demand by 10.2 percent.
B) Women's total expenditure on dress shoes will decrease.
C) Total revenue from the sale of women's dress shoes will decrease.
D) none of the above
5) If a 20 percent increase in the price of a used car results in a 10 percent decrease in the quantity of used
cars demanded, then the price elasticity of demand equals 5) _______
A) 0.5. B) 1.0. C) 10.0. D) 2.0.
6) If the price of a soda increases by 2 percent, and as a result the quantity of sodas demanded decreases by
5 percent, the price elasticity of demand equals 6) _______
A) 2.50. B) 1.50. C) 1.00. D) 0.40.
7) The University of Western Ontario has just lowered the price of its season football tickets from $350.00
to $300.00. As a result, there was an increase in the number of season tickets purchased from 43,000 to
47,000. The price elasticity of demand for season tickets equals 7) _______
A) 0.71. B) 0.58. C) 1.58. D) 1.71.
8) The price elasticity of demand for new cars is 1.2. Hence, a 10 percent price increase will 8) _______
A) decrease the quantity of new cars sold by 12 percent.
B) increase consumer expenditure on new cars by 12 percent.
C) decrease the quantity of new cars sold by 1.2 percent.
D) increase consumer expenditure on new cars by 1.2 percent.
9) If a consumer is insensitive to changes in the price of a good, then the consumer's demand for the good
is 9) _______
A) perfectly elastic. B) inelastic.
C) elastic. D) unit elastic.
10) If the elasticity of demand for peaches is 1.76 and the elasticity of demand for apples is 1.59, then
consumers are 10) ______
A) more sensitive to a change in the price of peaches than they are to a change in the price of apples.
B) more sensitive to a change in the quantity of peaches than they are to a change in the quantity of
apples.
C) less sensitive to a change in the price of peaches than they are to a change in the price of apples.
D) less sensitive to a change in the quantity of peaches than they are to a change in the quantity of apples.

11) The above figure shows the demand curve for movie rentals from Blockbuster. If Blockbuster raised
its price from $2.50 to $3.00, between these two prices the price elasticity of demand equals 11) ______
A) 0.5. B) 1.2. C) 2.0. D) 0.8.
12) The above figure shows the demand curve for movie rentals from Blockbuster. Which of the following
is a true statement? 12) ______
A) The price elasticity of demand for movie rentals falls as Blockbuster raises its price.
B) Consumer expenditure on movie rentals will always increase whenever Blockbuster lowers its price.
C) The demand for movie rentals is more price inelastic at $1.00 than it is at $1.50.
D) Blockbuster will take in more total revenue if it charges $4.00 per movie rental rather than $3.00.
13) The above figure shows the demand curve for movie rentals from Blockbuster. At which of the
following prices is the demand unit elastic? 13) ______
A) $3.50 B) $0.00 C) $2.50 D) $5.00
14) The above figure shows the demand curve for movie rentals from Blockbuster. At which of the
following prices does Blockbuster have the maximum total revenue? 14) ______
A) $5.00 B) $3.50 C) $0.00 D) $2.50
15) The above figure shows the demand curve for movie rentals from Blockbuster. If Blockbuster lowered
its price from $4.00 to $3.50, which of the following would happen? 15) ______
A) Total revenue would increase because demand is elastic.
B) Total revenue would increase because demand is inelastic.
C) Total revenue would decrease because demand is elastic.
D) Total revenue would decrease because demand is inelastic.
16) The above figure shows the demand curve for movie rentals from Blockbuster. If Blockbuster lowered
its price from $2.00 to $1.50, which of the following would happen? 16) ______
A) Total revenue would decrease because demand is elastic.
B) Total revenue would increase because demand is inelastic.
C) Total revenue would decrease because demand is inelastic.
D) Total revenue would increase because demand is elastic.
17) The above figure shows the demand curve for movie rentals from Blockbuster. If Blockbuster lowered
its price from $1.50 to $1.00, which of the following would happen? 17) ______
A) Total revenue would decrease because demand is elastic.
B) Total revenue would increase because demand is inelastic.
C) Total revenue would decrease because demand is inelastic.
D) Total revenue would increase because demand is elastic.
18) A hot dog vendor on a street corner wants to increase the total revenue from selling hot dogs. The price
elasticity of demand for the hot dogs is 1.1. Hence the vendor will 18) ______

A) lower the price of a hot dog.
B) raise the price of a hot dog as high as possible.
C) do whatever it takes to sell as many more hot dogs as possible.
D) work harder to reduce the costs of production.
19) Henry Ford believed that if his assembly-line production technique could reduce the price of
automobiles enough, his total revenue from selling automobiles would soar and he would become a
wealthy man. He must, therefore, have believed that the demand for automobiles was 19) ______
A) perfectly income elastic. B) perfectly inelastic.
C) inelastic. D) elastic.
20) Which of the following goods would have the smallest elasticity of demand? 20) ______
A) An education at the University of Toronto Law School sold to recent college graduates.
B) Insulin sold to diabetics.
C) A bottle of Bayer Aspirin sold to someone without a headache.
D) Mobil premium unleaded gasoline.
21) If peanut butter and jelly are complements, their cross elasticity of demand must be 21) ______
A) a number between zero and one.
B) a positive number that might be greater than 1.
C) infinitely high.
D) a negative number.
22) You are the new vice president in charge of advertising at Taco Bell. In your upcoming advertising
campaign, you plan to degrade the fast food competitor whose product is the closest substitute for Taco
Bell's tacos. That would be the fast food chain whose cross elasticity of demand with your tacos is equal
to
22) ______
A) positive 1.55. B) negative 1.75.
C) positive 1.00. D) negative 2.11.
23) For Product X, the income elasticity of demand is -2.56. Which of the following is therefore true?
A) Product X is an inferior good. B) Product X is a necessity.
C) Product X is a luxury. D) Product X is a normal good.
24) About six months ago, Pat lost the job as vice president of a local bank. Since losing the job, Pat still
has the Sunday newspaper delivered every week. For Pat, the Sunday newspaper is 24) ______
A) a normal good because Pat still buys the paper even with a big loss of income.
B) price inelastic.
C) one of life's few remaining luxuries.
D) income inelastic.
25) Refining gasoline for our cars requires a very specialized resource, crude oil. As a result, the 25)
A) demand for gasoline is price elastic.
B) supply of gasoline is price inelastic.
C) supply of gasoline is price elastic.
D) demand for gasoline is price inelastic.
26)
The supply schedule for chocolate chip cookies is given in the table above. What is the elasticity
of supply if price rises from $1.00 to $2.00?
A) 0.67 B) 0.50 C) 2.0 D) 1.5

27) The supply schedule for chocolate chip cookies is as given in the table above. As the price rises,
the elasticity of supply
A) increases initially and then decreases. B) remains the same.
C) increases. D) decreases.