Name:    Quiz #4: PRACTICE - micro Elasticity

Multiple Choice
Identify the choice that best completes the statement or answers the question. 1.

Figure 3.1 shows two markets: for cigarettes and diamonds.  According to these diagrams, which of the following is true?
 a. The demand for cigarettes and diamonds are both unit elastic. b. The demand for cigarettes is inelastic relative to the demand for diamonds. c. The demand for cigarettes is more inelastic compared to the demand for diamonds. d. The demand for cigarettes is perfectly inelastic, while the demand for diamonds is perfectly elastic.

2.

If a good does not have many substitutes, then the demand for this good will be
 a. elastic. b. inelastic. c. unit elastic. d. income elastic.

3.

An inferior good necessarily has
 a. a positive price elasticity of demand. b. a negative income elasticity of demand. c. a negative cross-elasticity of demand. d. a negative price elasticity of supply.

4.

To determine whether two goods are substitutes or complements, one would look at the
 a. Price elasticity of demand. b. Price elasticity of supply. c. Income elasticity of demand. d. Cross elasticity of demand.

5.

If a 5% increase in price leads to an 8% decrease in quantity demanded, demand is
 a. perfectly elastic b. elastic c. unit elastic d. inelastic e. perfectly inelastic

6.

Price elasticity of demand shows how much the demand curve for a good shifts when the price of this good changes.
 a. True b. False c. True only if the elasticity = 1.0

7.

Price elasticity of demand is the ratio of the percentage change in the quantity demanded of a good to a given percentage change in .
 a. the price of the good b. the consumer’s income c. the price of some other good d. the quantity demanded 8.

Based on the information in Exhibit 0060, we can determine that the demand for the good is __________ and an increase in price from \$40 to \$60 per unit will __________ total revenue.
 a. unit elastic; increase b. elastic; decrease c. unit elastic; not change d. inelastic; increase e. elastic; decrease

9.

If a price reduction leads to larger total revenue, demand is
 a. perfectly inelastic b. inelastic c. unit elastic d. elastic e. perfectly elastic

10.

When demand is price elastic, total revenue is
 a. directly related to quantity demanded b. inversely related to quantity demanded c. directly related to price d. directly related to price and inversely related to quantity demanded e. not related to either price or to quantity demanded

11.

If officials raise tuition on our campus in order to increase revenue, it will
 a. not be successful if the demand curve slopes downward b. be successful if demand is elastic c. be successful if demand is inelastic d. be successful if supply is elastic e. be successful if supply is inelastic

12.

If the demand for a good is elastic, then total revenue
 a. increases as price increases b. remains constant as quantity demanded increases c. increases as price decreases d. decreases as quantity demanded increases e. decreases as price decreases

13.

The total revenue from selling Elvis Bobble-head dolls would be equal to
 a. the price of Elvis Bobble-head dolls times the quantity sold b. the change in quantity sold divided by the change in price c. average cost times quantity produced d. the price of Elvis Bobble-head dolls times the quantity produced e. the price of Elvis Bobble-head dolls times the price elasticity of demand

14.

Recently the Acme Entertainment increased prices for concert tickets from \$38 to \$42, an increase of 10.5%.  If the demand for the tickets is elastic in this price range, then the quantity of tickets demanded will
 a. fall by more than 10.5% and revenues from ticket sales will rise. b. fall by more than 10.5% and revenues from ticket sales will fall. c. fall by less than 10.5% and revenues from ticket sales will rise. d. fall by less than 10.5% and revenues from ticket sales will fall.

True/False
Indicate whether the statement is true or false.

15.

If the price elasticity of demand is -1.5, this means that a 1% increase in price leads to 1.5% decrease in the quantity demanded.

16.

When the demand curve is steep, this indicates demand is inelastic.

17.

When the demand curve is a flat (horizontal) line, this indicates demand is perfectly inelastic.

18.

The quantity demanded for narrowly defined goods tend to be more responsive to changes in price.

19.

Inelastic demand is more common among broadly defined categories of goods (compared with narrowly defined specific  ones).

20.

If the cross price elasticity of demand for two goods is a negative number, this indicates the two goods are complements.

21.

Consumers are more likely to complain loudly but keep buyiing the product when they encounter price increases on goods with inelastic demand.

22.

When the demand for a good is inelastic, then an increase in price of this good leads to an increase in revenue.