1.

If the price of a good is increased by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to: A) 0.75. B) C) D) approximately 0.33. approximately 1.33. 1.

2. Using the midpoint method of elasticity to calculate the price elasticity of demand eliminates the problem of computing: A) different elasticities, depending on whether price decreases or increases. B) C) D) different elasticities because price and quantity are inversely related on the demand curve. total revenue when price falls and demand is inelastic. total revenue when price falls and demand is elastic.

3. Which of the following best describes price elasticity of demand? A) Price elasticity of demand measures the responsiveness of the change in the quantity demanded to a change in price. B) Price elasticity of demand measures the change in price versus a change in quantity demanded. C) Price elasticity of demand measures the responsiveness of the change in slope of the demand curve to a change in price. D) Price elasticity of demand measures the change in slope of the demand curve versus a change in quantity demanded. 4. The demand for textbooks is price inelastic. Which of the following would explain this? A) Many alternative textbooks can be used as substitutes. B) C) D) Students have a lot of time to adjust to price changes. Textbook purchases consume a large portion of most students' income. The good is a necessity.

5. You manage a popular nightclub and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that: A) your bouncer thinks the demand for drinks is elastic, while your bartender thinks the demand for drinks is inelastic. B) your bouncer thinks the demand for drinks is inelastic, while your bartender thinks the demand for drinks is elastic. C) both the bouncer and bartender think the demand for drinks is elastic. D) both the bouncer and bartender think the demand for drinks is inelastic.

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6. Suppose the price of gasoline increases 10% and quantity demanded in Orlando drops 5% per day. The price elasticity of demand for gasoline in Orlando is: A) price elastic. B) C) D) price inelastic. price unit-elastic. perfectly price inelastic.

7. A perfectly price-inelastic demand curve is: A) horizontal. B) C) D) downward-sloping. upward-sloping. vertical.

8. If the estimated price elasticity of demand for foreign travel is 4, then: A) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%. B) demand for foreign travel is inelastic. C) D) a 10% increase in the price of foreign travel will increase quantity demanded by 40% a 20% increase in the price of foreign travel will increase quantity demanded by 80%.

9. Suppose the price elasticity of demand for fishing lures equals 1 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should: A) lower prices in each state. B) C) D) raise prices in each state. lower prices in South Carolina and raise prices in Alabama. leave prices unchanged in South Carolina and raise prices in Alabama.

10. If an increase in the price of a good leads to an increase in total revenue, then: A) the supply curve must be price inelastic. B) C) D) the demand curve must be price inelastic. the supply curve is price elastic. the demand curve must be price elastic.

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11. The price elasticity of a good will tend to be greater: A) the longer the relevant time period. B) C) D) the fewer the number of substitute goods available. if it is a staple or necessity with few substitutes. if the share of income spent on the good is small.

12. Along the lower end of a linear demand curve, the price elasticity of demand will be: A) price-inelastic. B) C) D) price-elastic. price unit-elastic. negative.

13. There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, you would expect the demand for: A) medical exams to be more price-elastic. B) C) D) Bayer aspirin to be more price-elastic. Bayer aspirin to be more price-inelastic. both to be equally price-elastic.

Use the following to answer questions 14-15: Figure: Estimating Price Elasticity

14. (Figure: Estimating Price Elasticity) Between the two prices, P1 and P2, which demand curve has the lowest price elasticity (absolute value)? A) D1 B) D2
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C) D)

D3 D4

15. (Figure: Estimating Price Elasticity) Between the two prices, P1 and P2, which demand curve has the highest price elasticity (absolute value)? A) D1 B) C) D) D2 D3 D4

16. For which of the following is the cross-price elasticity of demand most likely a large positive number? A) hockey pucks and hockey sticks B) C) D) DVDs and milk french fries and onion rings all of these, because the cross-price elasticity is always a positive number

17. Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 while the answer for water and lemon is 0.13. This means that butter and margarine are ________ while water and lemon are ________. A) complements; substitutes B) C) D) substitutes; complements inelastic goods; elastic goods elastic goods; complements

18. If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when your income increases from $19,000 to $21,000 a year, other things equal, then, for you, shoes are considered a(n): A) normal good. B) C) D) inferior good. complementary good. substitute good.

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Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. A A A D B B D A D B A A B D C C B B

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