econ

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__________________________________________ Date: _________________________ (Last Name, First Name)

Assignment #4

Unit 3: Elasticity – Part II

MULTIPLE CHOICE

_______ 1. An increase in price causes a decrease in total revenue when demand is

A. elastic.

B. inelastic.

C. unit elastic.

D. perfectly inelastic.

_______ 2. When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good

A rise to $70, the quantity demanded of good A falls to 400 units. The price elasticity of demand

for good A is:

A. 1.50, and an increase in price will result in an increase in total revenue for good A.

B. 1.50, and an increase in price will result in a decrease in total revenue for good A.

C. 0.67, and an increase in price will result in an increase in total revenue for good A.

D. 22.22, and an increase in price will result in an increase in total revenue for good A.

D. 0.67, and an increase in price will result in a decrease in total revenue for good A.

_______ 3. ELAC is contemplating an increase in tuition to enhance revenue. If ELAC feels that raising

tuition would increase revenue, it is

A. assuming that the demand for college education is elastic.

B. assuming that the demand for college education is inelastic.

C. assuming that the demand for college education is unit elastic.

D. assuming that the demand for college education is perfectly elastic.

_______ 4. Your two younger siblings need $100 to buy new bikes. They opened a lemonade stand to the raise the

funds they need. Assume that your parents payed for all the ingredients. Your siblings currently are

charging 75 cents per cup, but they want to change the price to earn the $100 faster. If you know that the

demand for their lemonade is elastic, what is your advice to your siblings?

A. Leave the price at 25 cents and be patient.

B. Raise the price to increase total revenue.

C. Lower the price to increase total revenue.

D. There isn't enough information given to answer this question.

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_______ 5. As we move upward and to the left along a linear, downward-sloping demand curve,

A. both slope and elasticity remain constant.

B. slope changes but elasticity remains constant.

C. both slope and elasticity change.

D. slope remains constant but elasticity changes.

_______ 6. Income elasticity of demand measures how

A. the quantity demanded changes as consumer income changes.

B. consumer purchasing power is affected by a change in the price of a good.

C. the price of a good is affected when there is a change in consumer income.

D. the price of one good changes in response to a change in the price of another good.

_______ 7. Consider that your income has increased this year from $50,000 to $60,000. You bought 3 pairs of

designer jeans last year and decide to purchase 5 pair this year. Keeping all other factors the same, which

statement is correct regarding your income elasticity of demand and designer jeans?

A. the income elasticity of demand is -2.75 and the designer jeans are considered inferior goods.

B. The income elasticity of demand is 3.33 and the designer jeans are considered normal

goods.

C. The income elasticity of demand is 2.75 and the designer jeans are considered normal

goods.

D. The income elasticity of demand is -3.33 and the designer jeans are considered normal goods.

E. The income elasticity of demand is -3.33 and the designer jeans are considered inferior goods.

_______ 8. Cross-price elasticity of demand measures how

A. the price of one good changes in response to a change in the price of another good.

B. the quantity demanded of one good changes in response to a change in the quantity demanded of

another good.

C. the quantity demanded of one good changes in response to a change in the price of another good.

D. the quantity demanded changes as consumer income changes.

_______ 9. If product X’s price increases from $400 to $450 and product Y’s quantity demanded increases

from 15 to 20. Calculate the cross-price elasticity of demand. Are they substitutes or complements?

A. The cross-price elasticity of demand is 2.43 and they are substitutes.

B. The cross-price elasticity of demand is 2.43 and they are complements.

C. The cross-price elasticity of demand is -0.1 and they are complements. D. The cross-price elasticity of demand is 0.1 and they are substitutes.

E. The cross-price elasticity of demand is -0.1 and they are normal goods.

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Supply

A

B

C

25 50 75 100 125 150 175 200 225 250 275 300 Quantity

2

4

6

8

Price

_______ 10. If the price of product A rises, when is the price elasticity of supply likely to be more inelastic?

A. immediately after the price increase

B. one month after the price increase

C. three months after the price increase

D. one year after the price increase

E. three years after the price increase

_______ 11. If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would

A. increase by 4.2%

B. increase by 6%

C. decrease by 4.2%

D. decrease by 6%

E. increase by 5%

Figure 1

_______ 12. Refer to Figure 1. What is the price elasticity of supply between point A and point B?

A. 0.58

B. 0.71

C. 1.06

D. 1.4

E. 1.58