Econ 101 Practice #4

I Multiple choices
TABLE 1 : The supply and demand schedules for the umbrella market are given below:
Price Quantity Supplied Quantity Demand
$10 400 700
$15 500 650
$20 600 600
$25 700 550
$30 800 500
1. In table 1, at a price of ________ there would be an excess _______ of umbrellas.
a. $10; supply
b. $20; supply
c. $10; demand
d. $30; demand
e. $20; demand
2. In table 1, what number of umbrellas would actually be purchased if the price were $10?
a. 400
b. 500
c. 550
d. 650
e. 700
3. The elasticity of demand for umbrella is
a. greater at higher prices than at lower prices.
b. relatively elastic at all points on the demand curve.
c. relatively inelastic at all points on the demand curve.
d. greater at lower prices than at higher prices.
e. constant at all points on the demand curve.
4. Assume that the price elasticity of demand is 0.25 for a certain firm's product. If the firm increases price, the
firm's managers can expect total revenue to
a. decrease.
b. increase.
c. remain constant.
d. either increase or remain constant depending upon the size of the price increase.
5. If the price elasticity of demand for milk is 2/5 and the price elasticity of demand for wine is 5/4, a price cut will
a. increase total revenue from milk.
b. decrease total revenue from wine.
c. decrease both total revenues from milk and wine.
d. increase both total revenues from milk and wine.
e. decrease total revenue from milk, and increase total revenue from wine.
6. Which of the following is an incorrect statement about the own-price elasticity of demand?
a. Demand tends to be more elastic in the short-term than in the long-term.
b. Demand tends to be more inelastic for goods that comprise a larger share of a consumer's budget.
c. Demand tends to be more inelastic as more substitutes are available.
d. All of the above.

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7. When the rental price of apartments rises, the number of apartments supplied remains unchanged. This situation
illustrates that rental apartments have a
a. perfectly inelastic supply.
b. perfectly elastic supply.
c. unit elastic supply.
d. price elasticity of supply equal to 1.
e. price elasticity of supply equal to infinity.
8. The vast increases in oil revenues received by OPEC members after 1973’s oil crisis (a sharp increase in oil
price) demonstrated that the demand for oil was
a. Completely inelastic in 1973.
b. Inelastic at the original 1973 price levels.
c. Elastic at the original 1973 price levels.
d. Under the control of the multinational oil companies.
e. None of the above.
9. Price elasticity of demand determines the relationship between price changes and changes in total sales revenue.
When demand is inelastic
a. Price and total revenue move in opposite directions.
b. Price and total revenue move in same direction.
c. Total revenue increases whether price goes up or down.
d. Total revenue decreases whether price goes up or down.
e. None of the above.
10. If a 20 percent tuition increase leads to a 10 percent decline in enrolment, the price elasticity of demand is
a. 2.
b. 0.2.
c. 0.5.
d. 0.3.
e. 0.1.
11. If the cross-price elasticity between cognac and cigars is -3, a 3% decrease in the price of cognac will lead to a
a. 9% drop in the demand for cigars.
b. 0.09% drop in the quantity demanded of cognac.
c. 9% rise in the demand for cigars.
d. 0.09% rise in quantity demanded of cognac.
e. None of the above.
12. If the income elasticity for designer jeans is 1.5, a 10% increase in income will lead to a
a. 15% rise in demand for designer jeans.
b. 0.15% drop in the demand for designer jeans.
c. 0.15% rise in demand for designer jeans.
d. 15% drop in the demand for designer jeans.
e. None of the above.
13. The demand for Bounty brand paper towels is
a. less elastic than the demand for paper towels in general.
b. more elastic than the demand for paper towels in general.
c. equally elastic to the demand for paper towels in general.
d. none of the responses are correct.

II. The market for tomatoes is:

Qd=83-3P
QS=4P-1
a. find the elasticity of demand and of supply at equilibrium. Are the curves elastic or inelastic at that point?

b. find the elasticity of demand and of supply at P=$6. Are the curves elastic or inelastic at these points?

c. find the point on the demand curve of maximum sales revenue.