IMBA

Economics
Homework 2

Deadline is: July 21/17:00, upload on moodle.

1.Dan sells newspapers. Dan says that a 4 percent increase in the price of a
newspaper will decrease the quantity of newspapers demanded by 8 percent.
According to Dan, the demand for newspapers is
A) inelastic.
B) unit elastic.
C) perfectly elastic.
D) elastic.

2. The price elasticity of demand for furniture is estimated at 1.3. This value means a
one percent increase in the
A) price of furniture will increase the quantity of furniture demanded by 1.3 percent.
B) price of furniture will decrease the quantity of furniture demanded by 1.3 percent.
C) quantity of furniture demanded will decrease the price of furniture by 1.3 percent.
D) quantity of furniture demanded will increase the price of furniture by 1.3 percent.

3. A 20 percent increase in the quantity of pizza demanded results from a 10 percent

decline in its price. The price elasticity of demand for pizza is
A) 0.5.
B) 2.0.
C) 10.0.
D) 20.0.

4. If the quantity demanded of hamburgers increases by 20 percent when the price

decreases by 5 percent, then the price elasticity of demand is
A) 0.25.
B) 4.0.
C) 20.0.
D) 5.0.

5. Suppose a rise in the price of peaches from $5.50 to $6.50 per bushel decreases
the quantity demanded from 12,500 to 11,500 bushels. The price elasticity of
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demand is
A) 0.5.
B) 1.0.
C) 2.0.
D) 1000.0.

6. If the price of a soda increases from 75¢ to $1.00 and as a result the quantity
demanded of sodas decreases from 10 to 9 per week, the elasticity of demand for
sodas equals
A) 2.72.
B) 0.37.
C) 0.83.
D) 1.20.

7. The price of a good rises by 12 percent and the price elasticity of demand for the
good is 0.85. Which of the following is a CORRECT interpretation of these facts?
A) When the price rises by 12 percent, the quantity demanded decreased by 0.85
percent.
B) For each 1 percent that the price rose, the quantity demanded decreased by 10.2
percent.
C) For each 0.85 percent that the price rose, the quantity demanded decreased by 1
percent.
D) For each 1 percent that the price rose, the quantity demanded decreased by 0.85
percent.

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8. The figure shows the demand curve for popsicles. The price elasticity of demand
when the price of a popsicle increases from $0.30 to $0.50 is
A) 0.
B) 1.
C) 1/2.
D) 2.

9. When the percentage change in quantity demanded is less than the percentage
change in price, the demand for the good is
A) inelastic.
B) unit elastic.
C) perfectly inelastic.
D) elastic.

10. f the price of salt increases and the quantity demanded does NOT change, then
A) the price elasticity of demand is equal to zero.
B) demand is perfectly inelastic.
C) the demand curve for salt is horizontal.
D) Both answers A and B are correct.

11. Demand is perfectly inelastic when

A) shifts in the supply curve results in no change in price.
B) the good in question has perfect substitutes.
C) shifts of the supply curve result in no change in quantity demanded.
D) shifts of the supply curve result in no change in the total revenue from the
quantity sold.

12. A hot dog vendor on a street corner could increase the quantity of hot dogs her
customers demand by 12 percent if she lowers the price of a hot dog 10 percent. The
demand for the hot dogs is
A) cross elastic.
B) arc elastic.
C) unit elastic.
D) elastic.

13. "Last October, due to an early frost, the price of a pumpkin increased by 10
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percent compared to the price in the previous Halloween seasons. As a result, the
quantity demanded county-wide decreased from 2 million to 1.5 million." Based on
this statement, the
A) demand for pumpkins is elastic.
B) demand for pumpkins is inelastic.
C) demand for pumpkins is unit elastic.
D) demand curve for pumpkins shifted rightward.

14. If the price elasticity of demand for gasoline is 0.8 and the price elasticity of demand for
plane tickets is 2.2 then the demand for gasoline is ________ and the demand for plane tickets
is ________.
A) elastic; inelastic
B) inelastic; elastic
C) elastic; elastic
D) inelastic; inelastic

15. In 2012, Canadian farmers did not suffer from drought conditions that affected
the United States, but they did enjoy the higher corn prices. Canadian farmers
reacted to the higher price by planting more corn. Suppose that the price of corn
increased by 30 percent and the Canadian farmers increased the quantity of corn
they supply by 20 percent. The supply of corn is
A) perfectly inelastic.
B) unit elastic.
C) elastic.
D) inelastic.

16) The supply of lettuce in the short run will be ________ than the supply in the
long run and ________ than the supply today.
A) more elastic; less elastic
B) more elastic; more elastic
C) less elastic; more elastic
D) less elastic; less elastic

17) Which of the following represents a price elastic supply?

A) The quantity demanded increases 18 percent as a result of a decrease in the price
of 8 percent.
B) The price rises by 8 percent causing the quantity demanded to fall by 10 percent.
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C) The quantity supplied increases by 21 percent as a result of an increase in the
price of 12 percent.
D) The price rises by 22 percent causing the quantity supplied to increase by 3
percent.

18. In the above figure, the price elasticity of supply at any given quantity is
A) highest along S1, next highest along S2, and lowest along S3.
B) highest along S3, next highest along S2, and lowest along S1.
C) equal to zero on each of the three supply curves.
D) equal to one on each of the three supply curves.

19. If the elasticity of demand for peaches is 1.76 and the elasticity of demand for
apples is 1.59, then consumers are
A) more sensitive to a change in the price of peaches than they are to a change in the
price of apples.
B) less sensitive to a change in the price of peaches than they are to a change in the
price of apples.
C) more sensitive to a change in the quantity of peaches than they are to a change in
the quantity of apples.
D) less sensitive to a change in the quantity of peaches than they are to a change in
the quantity of apples.

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20. Along a straight-line demand curve, as the price falls the
A) demand becomes more elastic.
B) demand becomes less elastic.
C) elasticity of demand is constant.
D) demand is always unitary elastic.

21.
At the midpoint of a downward sloping straight-line demand curve, the demand
A) is elastic.
B) is unit elastic.
C) is inelastic.
D) has an elasticity exactly equal to zero.

22. Which of the following statements is FALSE?

A) A good with a vertical demand curve has a perfectly inelastic demand.
B) A good with a straight line, downward sloping demand curve has a demand whose
elasticity is constant.
C) A good with a horizontal demand curve has a perfectly elastic demand.
D) All of the above statements are false.

23. The demand for a good is elastic if

A) an increase in its price results in an increase in total revenue.
B) a decrease in its price results in a decrease in total revenue.
C) an increase in its price results in a decrease in total revenue.
D) the good is a necessity.

24. If University of Nebraska increased its season football ticket sales from 43,000 to
47,000 when it lowered price from $350.00 to $300.00, then its demand for season
tickets must be ________ because total revenue ________ when the price was
lowered.
A) elastic; decreased
B) elastic; increased
C) inelastic; decreased
D) inelastic; increased

25. At a local ice cream parlor, when the price of half-gallons of chocolate ice cream
was lowered by fifty cents per half-gallon, total revenue from the sale of chocolate
ice cream decreased. This result indicates that
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A) there are more people who like vanilla ice cream than there are people who like
chocolate ice cream.
B) the demand for chocolate ice cream is inelastic.
C) the demand for chocolate ice cream is elastic.
D) None of the above answers is correct.

26) If Sam wants to increase her total revenue from her sales of flowers and she
knows that the demand for flowers is price elastic, she should
A) lower her price to increase the demand and shift the demand curve rightward.
B) raise her price because she knows that the quantity demanded will also increase.
C) raise her price because she knows that the percentage decrease in the quantity
demanded will be smaller than the percentage increase in price.
D) lower her price because she knows that the percentage increase in the quantity
demanded will be greater than the percentage decrease in price.

27. The taxicab fare in Newville is regulated. The fare currently charged is $6 a ride.
Newville taxicab drivers want to obtain government's permission to lower the fare,
which they think will increase their total revenue. From this we can conclude that the
drivers believe that the demand for taxicab rides is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.

28) If Sam wants to increase her total revenue from her sales of flowers and she
knows that the demand for flowers is price inelastic, she should
A) lower her price to increase the demand and shift the demand curve rightward.
B) raise her price because she knows that the quantity demanded will also increase.
C) raise her price because she knows that the percentage decrease in the quantity
demanded will be smaller than the percentage increase in price.
D) lower her price because she knows that the percentage increase in the quantity
demanded will be greater than the percentage decrease in price.

29. Suppose Carol's Candid Cameras wants to increase its total revenue. If the firm
lowers the price of cameras by 2 percent, Carol must be predicting that the quantity
A) supplied will increase by more than 2 percent.
B) demanded will increase by more than 2 percent.
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C) demanded will decrease by less than 2 percent.
D) supply will decrease by less than 2 percent.

30. If an increase in price results in no change in total revenue, then demand must be
A) inelastic.
B) elastic.
C) unit elastic.
D) infinitely elastic.

31) If demand for Farmer John's maple syrup is inelastic, then when Farmer John
raises the price of maple syrup, his total revenue will
A) increase.
B) decrease.
C) stay the same.
D) probably change, but more information is needed to determine if the total
revenue increases, decreases, or stays the same.

32. ) The figure illustrates the demand for peanuts. If the price falls from $12 to $9 a
bag, total revenue will ________, and if the price rises from $3 to $6 a bag, total
revenue will ________.
A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease

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33. The figure above represents the behavior of total revenue as price falls along a
straight-line demand curve. What is the price elasticity of demand if total revenue is
given by point f?
A) Demand is inelastic.
B) Demand is unit elastic.
C) Demand is elastic.
D) It is impossible to determine.

34 Of the following, demand is likely to be the least elastic for

A) Ford automobiles.
B) Toyota automobiles.
C) compact disc players.
D) toothpicks.

35 Donuts and coffee are complements. When the price of a donut increases, the
demand for coffee ________ and the cross elasticity of demand for coffee with
respect to the price of a donut is ________.
A) decreases; negative
B) increases; negative
C) increases; positive
D) decreases; positive

36) If tea and coffee are substitutes, the cross elasticity of coffee with respect to the
price of tea will be ________ and an increase in the price of tea will ________ the
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demand for coffee.
A) positive; increase
B) negative; decrease
C) negative; increase
D) positive; decrease

37. Joe likes peanut butter and jelly sandwiches for lunch. We can conclude that for
Joe the cross elasticity of demand for peanut butter with respect to jelly is
A) positive because jelly and peanut butter are substitutes.
B) positive because jelly and peanut butter are complements.
C) negative because jelly and peanut butter are substitutes.
D) negative because jelly and peanut butter are complements.

38. If the cross elasticity of demand is -5 between french fries and orange drink, then
french fries
A) and orange drink are complements.
B) and orange drink are substitutes.
C) are a normal good and orange drink is an inferior good.
D) are an inferior good and orange drink is a normal good.

39) Suppose inter-city bus travel is a substitute for transportation by train. Which of
the following could then be TRUE?
A) The cross elasticity between bus and train travel could equal 0.65.
B) The cross elasticity between bus and train travel could equal 1.0.
C) The cross elasticity between bus and train travel could equal 1.25.
D) All of the above could be true.

40. Bus rides and canned soup are inferior goods, so the ________ elasticity of
demand is ________.
A) cross; positive
B) income; positive
C) income; negative
D) cross; negative

41) The income elasticity of demand is ________ for a normal good and ________
for an inferior good.
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A) positive; positive
B) positive; negative
C) negative; positive
D) negative; negative

42. If the income elasticity of demand for spaghetti is -1.3, then spaghetti
A) is a normal good.
B) is an inferior good.
C) has an elastic demand.
D) is income elastic.

43. A 10 percent increase in income has caused a 5 percent decrease in the quantity
demanded. The income elasticity is
A) 0.5.
B) -0.5.
C) 2.0.
D) -2.0.

44. As Mary's income increases by 20 percent, her demand for tickets to National
Hockey League games increases by 10 percent. Mary's demand for tickets is income
________; for Mary, hockey tickets are ________ good.
A) elastic; a normal
B) inelastic; a normal
C) elastic; an inferior
D) inelastic; an inferior

45. A 10 percent increase in income increases the quantity of apple juice demanded
from 18,800 to 21,200 gallons. The income elasticity of demand for apple juice is
A) 0.5.
B) 0.8.
C) 1.0.
D) 1.2.

46. If the price of oil is $60 per barrel, the quantity of oil supplied is 70 million barrels
per day. If the price is $40 per barrel, the quantity of oil supplied is 69 million barrels
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per day. This implies that the
A) supply of oil is elastic.
B) supply of oil is inelastic.
C) demand for oil is inelastic.
D) demand for oil is elastic.

47. An 18 percent increase in the price of a small car results in a 10 percent increase
in the quantity supplied. The price elasticity of supply is equal to
A) 1.80.
B) 0.55.
C) 0.75.
D) 0.40.

48. If the elasticity of supply is 4, a 10 percent increase in the price of a good leads to
a
A) 40 percent increase in the quantity of supply.
B) 4 percent decrease in the quantity demanded.
C) 2.5 percent increase in the quantity supplied.
D) 2.5 percent decrease in the quantity demanded.

49. If a small percentage decrease in the price of chocolate causes a larger

percentage decrease in the quantity supplied, the
A) demand for chocolate is elastic.
B) demand for chocolate is inelastic.
C) supply of chocolate is elastic.
D) supply of chocolate is inelastic.

50) Last year in the United States, the price of snowboards rose by 5 percent and the
price rise resulted in a 15 percent increase in the quantity supplied. This outcome is
an indication that
A) the supply curve of snowboards shifted rightward.
B) the supply of snowboards is price elastic.
C) some firms entered into the snowboard industry.
D) All of the above answers are correct.

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