1

Exam 2 Practice Questions

1. Betsy and Susan are roommates at UTD. Both recently received raises.
Betsy now buys more music downloads than before, but Susan buys
fewer. Betsy behaves as if music downloads are _____ goods, and
Susan's income elasticity of demand for music downloads is _____.
A) inferior; positive
B) inferior; negative
C) normal; positive
D) normal; negative

2. If two goods are substitutes, their cross-price elasticity of demand should

be:
A) positive.
B) negative.
C) positive and greater than one.
D) negative but in-between zero and one in absolute value.

3. Taco prices recently increased by 25%. In response, purchases of tacos

decreased by 5%. According to this finding, the price elasticity of
demand for tacos is:
A) 0.5.
B) 5.
C) 0.2.
D) 2.

4. If demand is relatively inelastic and supply is relatively elastic,

A) the entire tax burden will fall on consumers.
B) the majority of the tax burden will fall on producers.
C) the entire tax burden will fall on producers.
D) the majority of the tax burden will fall on consumers.

5. A toy store sold an average of 30 fidget spinners per day at $5 per

spinner but sold 50 per day at $3 per spinner. The price elasticity of
demand is:
A) greater than 1 but less than 3.
B) equal to 1.
C) greater than 3.
D) greater than zero but less than 1.
 2

1. Betsy and Susan are roommates at UTD. Both recently received raises.
Betsy now buys more music downloads than before, but Susan buys
fewer. Betsy behaves as if music downloads are _____ goods, and
Susan's income elasticity of demand for music downloads is _____.
A) inferior; positive
B) inferior; negative
C) normal; positive
D) normal; negative

2. If two goods are substitutes, their cross-price elasticity of demand should

be:
A) positive.
B) negative.
C) positive and greater than one.
D) negative but in-between zero and one in absolute value.

3. Taco prices recently increased by 25%. In response, purchases of tacos

decreased by 5%. According to this finding, the price elasticity of
demand for tacos is:
A) 0.5.
B) 5.
C) 0.2.
D) 2.

4. If demand is relatively inelastic and supply is relatively elastic,

A) the entire tax burden will fall on consumers.
B) the majority of the tax burden will fall on producers.
C) the entire tax burden will fall on producers.
D) the majority of the tax burden will fall on consumers.

5. A toy store sold an average of 30 fidget spinners per day at $5 per

spinner but sold 50 per day at $3 per spinner. The price elasticity of
demand is:
A) greater than 1 but less than 3.
B) equal to 1.
C) greater than 3.
D) greater than zero but less than 1.
 3

1. Which of the following shows that it is not always the case that when the
government increases taxes, then tax revenue increases
A) the Mashallian demand curve.
B) the backward-bending supply curve.
C) the Laffer curve.
D) the Lewis supply curve.

2. If demand is elastic, then an increase in price causes a firm's

A) total revenue to increase.
B) total revenue to decrease.
C) marginal revenue to be greater than price.
D) average revenue to decrease.
E) none of the above; it depends on the elasticity of supply as well.

3. Suppose the price elasticity of demand for cheeseburgers equals 0.37.

This means the overall demand for cheeseburgers is:
A) inelastic.
B) normal.
C) elastic.
D) inferior.

4. When using elasticity, if price is measured in terms of dollars instead of

cents
A) elasticity will decrease by a factor of 10.
B) elasticity will increase by a factor of 100.
C) elasticity will decrease by a factor of 100.
D) elasticity will increase by a factor of 10.
E) none of the above.

5. If demand is relatively elastic and supply is relatively inelastic,

A) the majority of the tax burden will fall on consumers.
B) the entire tax burden will fall on producers.
C) the majority of the tax burden will fall on producers.
D) the entire tax burden will fall on consumers.
 4

1. Which of the following shows that it is not always the case that when the
government increases taxes, then tax revenue increases
A) the Mashallian demand curve.
B) the backward-bending supply curve.
C) the Laffer curve.
D) the Lewis supply curve.

2. If demand is elastic, then an increase in price causes a firm's

A) total revenue to increase.
B) total revenue to decrease.
C) marginal revenue to be greater than price.
D) average revenue to decrease.
E) none of the above; it depends on the elasticity of supply as well.

3. Suppose the price elasticity of demand for cheeseburgers equals 0.37.

This means the overall demand for cheeseburgers is:
A) inelastic.
B) normal.
C) elastic.
D) inferior.

4. When using elasticity, if price is measured in terms of dollars instead of

cents
A) elasticity will decrease by a factor of 10.
B) elasticity will increase by a factor of 100.
C) elasticity will decrease by a factor of 100.
D) elasticity will increase by a factor of 10.
E) none of the above.

5. If demand is relatively elastic and supply is relatively inelastic,

A) the majority of the tax burden will fall on consumers.
B) the entire tax burden will fall on producers.
C) the majority of the tax burden will fall on producers.
D) the entire tax burden will fall on consumers.
 5

1. Consider an inferior good. When there is an increase in consumer's

income and also taxes are raised on the good, the effect on equilibrium
price is _____ and equilibrium quantity is _____
A) uncertain; an increase.
B) uncertain; a decrease.
C) a decrease; uncertain.
D) an increase; uncertain.
E) none of the above.

2. When there is an decrease in demand, the effect on equilibrium price is

_____ and equilibrium quantity is _____
A) uncertain; a decrease.
B) uncertain; an increase.
C) an increase; uncertain.
D) a decrease; uncertain.
E) none of the above.

3. The income elasticity of demand for eggs has been estimated to be 0.57.
If income grows by 5% in a period, demand will:
A) decrease by about 11.4%.
B) increase by about 8.77%.
C) increase by about 2.85%.
D) increase by about 11.4%.

4. A perfectly inelastic demand curve is:

A) horizontal.
B) vertical.
C) downward-sloping crossing both axes.
D) parabolic.

5. The price elasticity of demand measures the responsiveness of a _____ to

a _____
A) percentage change in quantity; percentage change in price.
B) percentage change in price; percentage change in quantity
C) change in quantity; change in price.
D) change in price; change in quantity.

6. For an inferior good, the income elasticity of demand will be:

A) positive.
B) negative.
C) determined by the direction of the change in income.
D) zero.
 6

1. Consider an inferior good. When there is an increase in consumer's

income and also taxes are raised on the good, the effect on equilibrium
price is _____ and equilibrium quantity is _____
A) uncertain; an increase.
B) uncertain; a decrease.
C) a decrease; uncertain.
D) an increase; uncertain.
E) none of the above.

2. When there is an decrease in demand, the effect on equilibrium price is

_____ and equilibrium quantity is _____
A) uncertain; a decrease.
B) uncertain; an increase.
C) an increase; uncertain.
D) a decrease; uncertain.
E) none of the above.

3. The income elasticity of demand for eggs has been estimated to be 0.57.
If income grows by 5% in a period, demand will:
A) decrease by about 11.4%.
B) increase by about 8.77%.
C) increase by about 2.85%.
D) increase by about 11.4%.

4. A perfectly inelastic demand curve is:

A) horizontal.
B) vertical.
C) downward-sloping crossing both axes.
D) parabolic.

5. The price elasticity of demand measures the responsiveness of a _____ to

a _____
A) percentage change in quantity; percentage change in price.
B) percentage change in price; percentage change in quantity
C) change in quantity; change in price.
D) change in price; change in quantity.

6. For an inferior good, the income elasticity of demand will be:

A) positive.
B) negative.
C) determined by the direction of the change in income.
D) zero.
 7

1. A restaurant manager has estimated that the price elasticity of demand

for meals is 2. If the restaurant increases prices by 5%, she can expect the
number of meals sold to decrease by _____ .
A) 10%.
B) 5%.
C) 0.4%
D) 2.5%.

2. The phenomenon of economic development with unlimited supply of

labor refers to a
A) perfectly elastic labor supply curve.
B) perfectly inelastic labor supply curve.
C) backward-bending labor supply curve.
D) forward-falling labor supply curve.

3. If a good is normal and an income increase causes demand to change by

12%, then if ED = 4, ES = 2 equilibrium price will
A) increase by 2%
B) increase by 0.5%
C) increase by 6%
D) decrease by 0.5%
E) none of the above

4. Consider a linear downward-sloping demand curve. At high prices

demand is ____ , and at low prices ____
A) inferior; normal
B) elastic; inelastic
C) normal; inferior
D) inelastic; elastic

5. A rancher in Oklahoma decides to raise the price of her beef by 19% over
the prevailing market price. If the demand for beef is perfectly elastic,
this rancher's quantity demanded will:
A) fall to 0.
B) fall slightly.
C) increase slightly.
D) not change.

6. During a Marshallian period,

A) the entire tax burden will fall on consumers.
B) the majority of the tax burden will fall on producers.
C) the entire tax burden will fall on producers.
D) the majority of the tax burden will fall on consumers.
 8

1. A restaurant manager has estimated that the price elasticity of demand

for meals is 2. If the restaurant increases prices by 5%, she can expect the
number of meals sold to decrease by _____ .
A) 10%.
B) 5%.
C) 0.4%
D) 2.5%.

2. The phenomenon of economic development with unlimited supply of

labor refers to a
A) perfectly elastic labor supply curve.
B) perfectly inelastic labor supply curve.
C) backward-bending labor supply curve.
D) forward-falling labor supply curve.

3. If a good is normal and and income increase causes demand to change by

12%, then if ED = 4, ES = 2 equilibrium price will
A) increase by 2%
B) increase by 0.5%
C) increase by 6%
D) decrease by 0.5%
E) none of the above

4. Consider a linear downward-sloping demand curve. At high prices

demand is ____ , and at low prices ____
A) inferior; normal
B) elastic; inelastic
C) normal; inferior
D) inelastic; elastic

5. A rancher in Oklahoma decides to raise the price of her beef by 19% over
the prevailing market price. If the demand for beef is perfectly elastic,
this rancher's quantity demanded will:
A) fall to 0.
B) fall slightly.
C) increase slightly.
D) not change.

6. During a Marshallian period,

A) the entire tax burden will fall on consumers.
B) the majority of the tax burden will fall on producers.
C) the entire tax burden will fall on producers.
D) the majority of the tax burden will fall on consumers.
 9

1. If supply increases by 24% and ED = 6, ES = 2 then equilibrium price will

A) increase by 3%
B) decrease by 4%
C) decrease by 12%
D) increase by 4%
E) none of the above

2. Suppose the price of good C rose by 25% and the quantity demand of
good D decreased by 50%. We know that the cross-price elasticity is
such that:
A) ECD = –0.5.
B) EDC = –0.5.
C) EDC = –2.
D) ECD = –2.

3.Following all guidelines for perfect answers, illustrate and calculate (algebraically) the market
equilibrium price and quantity if QD = 110  2P; QS = -10 + 2P.
 10

1. If supply increases by 24% and ED = 6, ES = 2 then equilibrium price will

A) increase by 3%
B) decrease by 4%
C) decrease by 12%
D) increase by 4%
E) none of the above

2. Suppose the price of good C rose by 25% and the quantity demand of
good D decreased by 50%. We know that the cross-price elasticity is
such that:
A) ECD = –0.5.
B) EDC = –0.5.
C) EDC = –2.
D) ECD = –2.

3.Following all guidelines for perfect answers, illustrate and calculate (algebraically) the market
equilibrium price and quantity if QD = 110  2P; QS = -10 + 2P.
 11

1. Suppose supply increases by 5%, ceteris paribus the effect on equilibrium price will be
the smallest when
a. ES = 5.
b. ES = 0.
c. ES = 0.5.
d. ES = 10.

2. If a price increase from $20 to $40 causes quantity demanded to decrease from 100
units to 50 units, one can conclude that demand for the product is _____.
a. inelastic
b. perfectly elastic
c. elastic
d. unitary elastic
e. perfectly inelastic

3. When a firm can sell all it wants at a given price,

a. demand is perfectly elastic.
b. supply is perfectly elastic.
c. supply is unitary elastic.
d. supply is perfectly inelastic.
e. demand is perfectly inelastic.

4. Total revenue reaches its maximum value when

a. ED = ∞.
b. ED = 1.
c. ED = 0
d. ES = ∞.
e. ES = 1.

5. If the cross-price elasticity of demand for two goods is negative,

a. both goods are normal goods.
b. the goods are complements.
c. one of the goods is necessarily a normal good, and the other good is
necessarily an inferior good.
d. the goods are substitutes.
 12

1. Suppose supply increases by 5%, ceteris paribus the effect on equilibrium price will be
the smallest when
a. ES = 5.
b. ES = 0.
c. ES = 0.5.
d. ES = 10.

2. If a price increase from $20 to $40 causes quantity demanded to decrease from 100
units to 50 units, one can conclude that demand for the product is _____.
a. inelastic
b. perfectly elastic
c. elastic
d. unitary elastic
e. perfectly inelastic

3. When a firm can sell all it wants at a given price,

a. demand is perfectly elastic.
b. supply is perfectly elastic.
c. supply is unitary elastic.
d. supply is perfectly inelastic.
e. demand is perfectly inelastic.

4. Total revenue reaches its maximum value when

a. ED = ∞.
b. ED = 1.
c. ED = 0
d. ES = ∞.
e. ES = 1.

5. If the cross-price elasticity of demand for two goods is negative,

a. both goods are normal goods.
b. the goods are complements.
c. one of the goods is necessarily a normal good, and the other good is
necessarily an inferior good.
d. the goods are substitutes.
 13

1. If the percentage change in the quantity demanded of a good is greater than the
percentage change in the price of the good, then the demand for the good is _____.
a. elastic
b. inelastic
c. unit-elastic
d. perfectly elastic
e. perfectly inelastic

2. Consider the market for an inferior good. If consumer incomes decrease and the
number of firms in the industry increase, the effect of equilibrium price is _____ and the
effect on equilibrium quantity is _____ .
a. an increase; indeterminate.
b. indeterminate; an increase.
c. a decrease; indeterminate.
d. indeterminate; a decrease.

3. If the price of good A decreases by 10 percent and the quantity demanded of good B
decreases by 5 percent, this is evidence that goods A and B are
a. both normal goods.
b. inelastic.
c. substitutes for one another.
d. complement goods to one another.
e. both inferior goods.

4. When the manager of a local movie theater raises the price of movie tickets from $7.50
to $8.50, his total revenue falls. This means that:
a. demand is inversely related to price.
b. demand is positively related to price.
c. price and movie tickets are substitutes.
d. the demand for movie tickets is elastic.
e. the demand for movie tickets is inelastic.

5. Suppose a producer decides that if the price of his or her product is $10, the quantity
supplied will be 1,000 units, and if the price is $11, the quantity supplied will be 1,100.
The supply of the good is
a. inelastic.
b. unitary elastic.
c. elastic.
d. perfectly inelastic.
e. perfectly elastic.
 14

1. If the percentage change in the quantity demanded of a good is greater than the
percentage change in the price of the good, then the demand for the good is _____.
a. elastic
b. inelastic
c. unit-elastic
d. perfectly elastic
e. perfectly inelastic

2. Consider the market for an inferior good. If consumer incomes decrease and the
number of firms in the industry increase, the effect of equilibrium price is _____ and the
effect on equilibrium quantity is _____ .
a. an increase; indeterminate.
b. indeterminate; an increase.
c. a decrease; indeterminate.
d. indeterminate; a decrease.

3. If the price of good A decreases by 10 percent and the quantity demanded of good B
decreases by 5 percent, this is evidence that goods A and B are
a. both normal goods.
b. inelastic.
c. substitutes for one another.
d. complement goods to one another.
e. both inferior goods.

4. When the manager of a local movie theater raises the price of movie tickets from $7.50
to $8.50, his total revenue falls. This means that:
a. demand is inversely related to price.
b. demand is positively related to price.
c. price and movie tickets are substitutes.
d. the demand for movie tickets is elastic.
e. the demand for movie tickets is inelastic.

5. Suppose a producer decides that if the price of his or her product is $10, the quantity
supplied will be 1,000 units, and if the price is $11, the quantity supplied will be 1,100.
The supply of the good is
a. inelastic.
b. unitary elastic.
c. elastic.
d. perfectly inelastic.
e. perfectly elastic.
 15

1. For a linear (constant slope) demand curve, elasticity is ______ above the (quantity,
price) midpoint and _____ below it.
a. constant; constant.
b. less than one; greater than one.
c. positive; negative.
d. greater than one; less than one.
e. negative; positive.

2. If the price elasticity of demand for a given product is 7, this means that
a. the percentage change in quantity demanded is 7 times the percentage change
in price.
b. if quantity demanded fell by 1 percent, price would fall by 7 percent.
c. if price was raised 7 percent, quantity demanded would rise 7 percent.
d. if price was raised 7 percent, quantity demanded would fall by 7 percent.
e. none of the above

3. Which two of the following illustrate essentially the same economic effects?
a. The backward-bending labor supply curve and the Lewis supply curve.
b. The backward-bending labor supply curve and a nonlinear demand curve.
c. The Lewis supply curve and Marshallian supply in the short-run.
d. The Laffer curve and a firm's total revenue curve.

4. Assume that the price elasticity of demand good is 0.20. A 10 percent increase in the
price of the good will be followed by a:
a. 0.2 percent decrease in the quantity demanded.
b. 2 percent increase in the quantity demanded.
c. 2 percent decrease in the quantity demanded.
d. 20 percent decrease in the quantity demanded.
e. 20 percent increase in the quantity demanded.

5. Price rises from $10 to $12, and the quantity demanded falls from 200 units to 180
units. What is the approximate price elasticity of demand between these two prices?
a. 3.67
b. 1.73
c. 0.58
d. 0.27

6. Consider the market for a normal good. If consumer incomes decrease and the number
of firms in the industry increase, the effect of equilibrium price is _____ and the effect on
equilibrium quantity is _____ .
a. indeterminate; a decrease.
b. a decrease; indeterminate.
c. indeterminate; an increase.
d. an increase; indeterminate.
 16

1. For a linear (constant slope) demand curve, elasticity is ______ above the (quantity,
price) midpoint and _____ below it.
a. constant; constant.
b. less than one; greater than one.
c. positive; negative.
d. greater than one; less than one.
e. negative; positive.

2. If the price elasticity of demand for a given product is 7, this means that
a. the percentage change in quantity demanded is 7 times the percentage change
in price.
b. if quantity demanded fell by 1 percent, price would fall by 7 percent.
c. if price was raised 7 percent, quantity demanded would rise 7 percent.
d. if price was raised 7 percent, quantity demanded would fall by 7 percent.
e. none of the above

3. Which two of the following illustrate essentially the same economic effects?
a. The backward-bending labor supply curve and the Lewis supply curve.
b. The backward-bending labor supply curve and a nonlinear demand curve.
c. The Lewis supply curve and Marshallian supply in the short-run.
d. The Laffer curve and a firm's total revenue curve.

4. Assume that the price elasticity of demand good is 0.20. A 10 percent increase in the
price of the good will be followed by a:
a. 0.2 percent decrease in the quantity demanded.
b. 2 percent increase in the quantity demanded.
c. 2 percent decrease in the quantity demanded.
d. 20 percent decrease in the quantity demanded.
e. 20 percent increase in the quantity demanded.

5. Price rises from $10 to $12, and the quantity demanded falls from 200 units to 180
units. What is the approximate price elasticity of demand between these two prices?
a. 3.67
b. 1.73
c. 0.58
d. 0.27

6. Consider the market for a normal good. If consumer incomes decrease and the number
of firms in the industry increase, the effect of equilibrium price is _____ and the effect on
equilibrium quantity is _____ .
a. indeterminate; a decrease.
b. a decrease; indeterminate.
c. indeterminate; an increase.
d. an increase; indeterminate.
 17

1. Consumers will bear the entire burden of a tax when _____ and producers will bear the
entire burden of a tax when _____ .
a. supply is perfectly elastic; demand is perfectly elastic.
b. supply is perfectly inelastic; demand is perfectly inelastic.
c. demand is perfectly elastic; supply is perfectly elastic.
d. none of the above.

2. Since they are often used together, peanut butter and jelly are:
a. substitutes and have a positive cross-price elasticity of demand.
b. complements and have a positive cross-price elasticity of demand.
c. substitutes and have a negative cross-price elasticity of demand.
d. complements and have a negative cross-price elasticity of demand.

3. For which of the following types of good is it possible for the elasticity of supply to be
negative.?
a. final products.
b. inferior goods.
c. Marshallian products.
d. complementary goods.
e. none of the above

4. If a 50 percent increase in the price of pizza results in a 25 percent decrease in the

quantity demanded of pizza, then the price elasticity of demand for pizza:
a. is equal to 2 and demand for pizza is elastic.
b. is equal to 0.5 and demand for pizza is inelastic.
c. is equal to 0.5 and demand for pizza is elastic.
d. is equal to 2 and demand for pizza is inelastic.
e. cannot be determined from the information provided.

5. Following all guidelines for perfect answers, illustrate and calculate (algebraically) the market equilibrium
price and quantity when QD = 260  5P; QS = -20 + 2P.
 18

1. Consumers will bear the entire burden of a tax when _____ and producers will bear the
entire burden of a tax when _____ .
a. supply is perfectly elastic; demand is perfectly elastic.
relatively inelastic sector
b. supply is perfectly inelastic; demand is perfectly inelastic.
bears the burden
c. demand is perfectly elastic; supply is perfectly elastic.
d. none of the above.

2. Since they are often used together, peanut butter and jelly are:
a. substitutes and have a positive cross-price elasticity of demand.
b. complements and have a positive cross-price elasticity of demand.
c. substitutes and have a negative cross-price elasticity of demand.
d. complements and have a negative cross-price elasticity of demand.

3. For which of the following types of good is it possible for the elasticity of supply to be
negative.?
a. final products.
b. inferior goods.
c. Marshallian products.
d. complementary goods.
e. none of the above

4. If a 50 percent increase in the price of pizza results in a 25 percent decrease in the

quantity demanded of pizza, then the price elasticity of demand for pizza:
a. is equal to 2 and demand for pizza is elastic.
b. is equal to 0.5 and demand for pizza is inelastic.
c. is equal to 0.5 and demand for pizza is elastic.
d. is equal to 2 and demand for pizza is inelastic.
e. cannot be determined from the information provided.

5. Following all guidelines for perfect answers, illustrate and calculate (algebraically) the market equilibrium
price and quantity when QD = 260  5P; QS = -20 + 2P.
 19

1. If Daniel bought 21 DVDs last year when his income was $30,000 and he buys 23
DVDs this year when his income is $35,000, then his income elasticity of demand is
approximately ______________ which means that DVDs are a(n) ______________ good
for Daniel.
a. +0.59; inferior
b. -1.69; inferior
c. +0.59; normal
d. -0.44; inferior
e. +1.69; normal

2. For a linear demand curve, the associated marginal revenue curve

a. is half as steep as the demand curve because it crosses through the quantity
midpoint.
b. cannot be illustrated in the same graph as the demand curve.
c. shares the same horizontal intercept as the demand curve.
d. shares the same vertical intercept as the demand curve.

3. If a demand curve has a choke price (P-intercept) of 400 then demand is inelastic at a
price of
a. 100.
b. 200.
c. 300.
d. none of the above; we need to know the Q-intercept.

4. If the demand curve for a good is relatively inelastic and the supply curve is relatively
elastic, then who will pay the greater share of a tax placed on the good?
a. The sellers will pay the greater share.
b. The buyers and the sellers will pay equal shares.
c. There is not enough information to answer the question.
d. The buyers will pay the greater share.
 20

1. If Daniel bought 21 DVDs last year when his income was $30,000 and he buys 23
DVDs this year when his income is $35,000, then his income elasticity of demand is
approximately ______________ which means that DVDs are a(n) ______________ good
for Daniel.
a. +0.59; inferior
b. -1.69; inferior
c. +0.59; normal
d. -0.44; inferior
e. +1.69; normal

2. For a linear demand curve, the associated marginal revenue curve

a. is half as steep as the demand curve because it crosses through the quantity
midpoint.
b. cannot be illustrated in the same graph as the demand curve.
c. shares the same horizontal intercept as the demand curve.
d. shares the same vertical intercept as the demand curve.

3. If a demand curve has a choke price (P-intercept) of 400 then demand is inelastic at a
price of
a. 100.
b. 200.
c. 300.
d. none of the above; we need to know the Q-intercept.

4. If the demand curve for a good is relatively inelastic and the supply curve is relatively
elastic, then who will pay the greater share of a tax placed on the good?
a. The sellers will pay the greater share.
b. The buyers and the sellers will pay equal shares.
c. There is not enough information to answer the question.
d. The buyers will pay the greater share.
 21

1. If ED = 0.75 and price increases, you would forecast

A) a decrease in total revenue.
B) a shift left in the demand curve.
C) an increase in total revenue.
D) a shift right in the demand curve.

2. If an increase in income of 10% causes an increase in quantity demanded

of 20% for a good, the good is a(n):
A) luxury good.
B) inferior good.
C) invariant good.
D) necessity.

3. Above the price midpoint of a linear demand curve

A) marginal revenue is positive and an increase in price will increase
total revenue.
B) marginal revenue is negative and an increase in price will decrease
total revenue.
C) marginal revenue is negative and an increase in price will increase
total revenue.
D) marginal revenue is positive and an increase in price will decrease
total revenue.

4. Consider the market for yoga pants. If it is found that yoga pants
dangerously decrease blood flow in wearers’ legs and the price of lycra
(used to make yoga pants) decreases, then
A) the equilibrium price will increase but the effect on equilibrium
quantity is indeterminate.
B) the equilibrium price will decrease but the effect on equilibrium
quantity is indeterminate.
C) the effect on equilibrium price is indeterminate but equilibrium
quantity will increase.
D) the effect on equilibrium price is indeterminate but equilibrium
quantity will decrease.
 22

1. If ED = 0.75 and price increases, you would forecast

A) a decrease in total revenue.
B) a shift left in the demand curve.
C) an increase in total revenue.
D) a shift right in the demand curve.

2. If an increase in income of 10% causes an increase in quantity demanded

of 20% for a good, the good is a(n):
A) luxury good.
B) inferior good.
C) invariant good.
D) necessity.

3. Above the price midpoint of a linear demand curve

A) marginal revenue is positive and an increase in price will increase
total revenue.
B) marginal revenue is negative and an increase in price will decrease
total revenue.
C) marginal revenue is negative and an increase in price will increase
total revenue.
D) marginal revenue is positive and an increase in price will decrease
total revenue.

4. Consider the market for yoga pants. If it is found that yoga pants
dangerously decrease blood flow in wearers’ legs and the price of lycra
(used to make yoga pants) decreases, then
A) the equilibrium price will increase but the effect on equilibrium
quantity is indeterminate.
B) the equilibrium price will decrease but the effect on equilibrium
quantity is indeterminate.
C) the effect on equilibrium price is indeterminate but equilibrium
quantity will increase.
D) the effect on equilibrium price is indeterminate but equilibrium
quantity will decrease.
 23

1. The elasticity of labor supply is negative

A) on the portion of the labor supply curve after the Lewis turning
point.
B) for high wage levels on a backward-bending labor supply curve.
C) on the portion of the labor supply curve prior to the Lewis turning
point.
D) for low wage levels on a backward-bending labor supply curve.
E) none of the above, the law of supply implies that the elasticity of
supply is always positive.

2. Whether two goods are substitutes or complements can be determined by

computing the:
A) price elasticity of supply.
B) income elasticity of demand.
C) price elasticity of demand.
D) cross-price elasticity of demand.

3. When moving down along a straight-line (linear) demand curve:

A) the elasticity of demand changes from elastic to inelastic.
B) the elasticity of demand falls then rises.
C) the elasticity of demand changes from inelastic to elastic.
D) the elasticity of demand rises then falls.
E) the elasticity of demand stays the same.

4. If the demand for a product is perfectly inelastic and there is an increase

in supply
A) the equilibrium price decreases and equilibrium quantity increases.
B) the equilibrium price decreases and equilibrium quantity stays the
same.
C) the equilibrium price decreases and equilibrium quantity increases.
D) the equilibrium price decreases and the effect on equilibrium
quantity is ambiguous.
E) none of the above.
 24

1. The elasticity of labor supply is negative

A) on the portion of the labor supply curve after the Lewis turning
point.
B) for high wage levels on a backward-bending labor supply curve.
C) on the portion of the labor supply curve prior to the Lewis turning
point.
D) for low wage levels on a backward-bending labor supply curve.
E) none of the above, the law of supply implies that the elasticity of
supply is always positive.

2. Whether two goods are substitutes or complements can be determined by

computing the:
A) price elasticity of supply.
B) income elasticity of demand.
C) price elasticity of demand.
D) cross-price elasticity of demand.

3. When moving down along a straight-line (linear) demand curve:

A) the elasticity of demand changes from elastic to inelastic.
B) the elasticity of demand falls then rises.
C) the elasticity of demand changes from inelastic to elastic.
D) the elasticity of demand rises then falls.
E) the elasticity of demand stays the same.

4. If the demand for a product is perfectly inelastic and there is an increase

in supply
A) the equilibrium price decreases and equilibrium qunatity increases.
B) the equilibrium price decreases and equilibrium quantity stays the
same.
C) the equilibrium price decreases and equilibrium quantity increases.
D) the equilibrium price decreases and the effect on equilibrium
quantity is ambiguous.
E) none of the above.

   
 25

1. For which of the following goods is demand most likely to be price

inelastic?
A) ramen noodels
B) private college education
C) cigarettes
D) diamonds

2. Producers bear the entire burden of a tax when

A) supply is perfectly inelastic.
B) demand is perfectly inelastic.
C) demand is perfectly elastic.
D) both A) and B)
E) both A) and C)

3. If the supply of gold parking spaces at UTD is perfectly elastic and

enrollment increases
A) the equilibrium price stays the same and the equilibrium quantity
increases.
B) the equilibrium price increases and the equilibrium quantity
increases.
C) the equilibrium price decreases and the equilibrium quantity
increases.
D) the effect on equilibrium price is uncertain and the equilibrium
quantity increases.

4. Which of the following indicates greater price sensitivity on the part of

consumers?
A) ED = 0.5.
B) ES = 0.5.
C) ED = 2.
D) ES = 2.

5. You are asked to forecast the change in the price of vanilla. You know
that ED = 2, ES = 0.5 and supply will increase by 10%. Your prediction
should be
A) a 0.25% decrease in price.
B) a 0.25% increase in price.
C) a 4% decrease in price.
D) a 4% increase in price.

   
 26

1. For which of the following goods is demand most likely to be price

inelastic?
A) ramen noodels
B) private college education
C) cigarettes
D) diamonds

2. Producers bear the entire burden of a tax when

A) supply is perfectly inelastic.
B) demand is perfectly inelastic.
C) demand is perfectly elastic.
D) both A) and B)
E) both A) and C)

3. If the supply of gold parking spaces at UTD is perfectly elastic and

enrollment increases
A) the equilibrium price stays the same and the equilibrium quantity
increases.
B) the equilibrium price increases and the equilibrium quantity
increases.
C) the equilibrium price decreases and the equilibrium quantity
increases.
D) the effect on equilibrium price is uncertain and the equilibrium
quantity increases.

4. Which of the following indicates greater price sensitivity on the part of

consumers?
A) ED = 0.5.
B) ES = 0.5.
C) ED = 2.
D) ES = 2.

5. You are asked to forecast the change in the price of vanilla. You know
that ED = 2, ES = 0.5 and supply will increase by 10%. Your prediction
should be
A) a 0.25% decrease in price.
B) a 0.25% increase in price.
C) a 4% decrease in price.
D) a 4% increase in price.

 
 27

1. If the supply of a product is perfectly inelastic and taxes on that product

are decreased,
A) the supply curve shifts down.
B) the supply curve shifts to the right.
C) the supply curve shifts up.
D) the supply curve shifts to the left.
E) the supply curve stays the same.

1. IF 0 < EI < 1 and income decreases,

A) the good is inelastic and the demand curve is relatively steep.
B) the good is inelastic and the demand curve is relatively flat.
C) the good is a necessity and the demand curve shifts to the left.
D) the good is a necessity and the demand curve shifts to the right.

1. A demand curve that is inelastic:

A) means that buyers are very sensitive to the units of measurement of
price and quantity.
B) means that buyers are not very sensitive to the units of measurement
of price and quantity.
C) means that buyers are not very sensitive to price changes.
D) means that buyers are very sensitive to price changes.

4. If the price of Good & Plenty decreases from $1.10 to $0.90, the quantity
demanded increases from 190 boxes to 210 boxes. The price elasticity of
demand is:
A) 2.
B) 1.
C) 0.
D) 0.5.

5. It is found that EI = –0.8 for paletas and incomes fall by 10%. Based on
this, it can be estimated that paleta sales will:
A) decrease by 80%.
B) increase by 80%.
C) increase by 8%.
D) decrease by 8%.
 28

1. If the supply of a product is perfectly inelastic and taxes on that product

are decreased,
A) the supply curve shifts down.
B) the supply curve shifts to the right.
C) the supply curve shifts up.
D) the supply curve shifts to the left.
E) the supply curve stays the same.

2. IF 0 < EI < 1 and income decreases,

A) the good is inelastic and the demand curve is relatively steep.
B) the good is inelastic and the demand curve is relatively flat.
C) the good is a necessity and the demand curve shifts to the left.
D) the good is a necessity and the demand curve shifts to the right.

3. A demand curve that is inelastic:

A) means that buyers are very sensitive to the units of measurement of
price and quantity.
B) means that buyers are not very sensitive to the units of measurement
of price and quantity.
C) means that buyers are not very sensitive to price changes.
D) means that buyers are very sensitive to price changes.

4. If the price of Good & Plenty decreases from $1.10 to $0.90, the quantity
demanded increases from 190 boxes to 210 boxes. The price elasticity of
demand is:
A) 2.
B) 1.
C) 0.
D) 0.5.

5. It is found that EI = –0.8 for paletas and incomes fall by 10%. Based on
this, it can be estimated that paleta sales will:
A) decrease by 80%.
B) increase by 80%.
C) increase by 8%.
D) decrease by 8%.
 29

1. If a product's price rises by 6%, and its quantity demanded falls by 8%,
then we can say that demand for this product is:
A) inferior.
B) unitary elastic.
C) elastic.
D) normal.
E) inelastic.

2. When the price of good decreases from $10 to $8, the quantity supplied
of it decreases from 80 to 65. The price elasticity of supply is
approximately:
A) 0.80.
B) 0.93.
C) 1.07.
D) 0.75.

3. Suppose that the demand for a good is elastic. If the price of the good
decreases, then total revenue:
A) increases.
B) is negative.
C) remains constant.
D) decreases.

4. The idea that an increase in the tax rate may increase or decrease a
government's revenue is captured by
A) the Lewis turning point.
B) a Marshallian period.
C) Hauser's law.
D) the Laffer curve.
E) the total revenue curve.

Following all guidelines for perfect answers, illustrate and calculate (algebraically) the market
equilibrium when QD = 10 – 0.5ꞏP; QS = 0.5ꞏP.
 30

1. If a product's price rises by 6%, and its quantity demanded falls by 8%,
then we can say that demand for this product is:
A) inferior.
B) unitary elastic.
C) elastic.
D) normal.
E) inelastic.

2. When the price of good decreases from $10 to $8, the quantity supplied
of it decreases from 80 to 65. The price elasticity of supply is
approximately:
A) 0.80.
B) 0.93.
C) 1.07.
D) 0.75.

3. Suppose that the demand for a good is elastic. If the price of the good
decreases, then total revenue:
A) increases.
B) is negative.
C) remains constant.
D) decreases.

4. The idea that an increase in the tax rate may increase or decrease a
government's revenue is captured by
A) the Lewis turning point.
B) a Marshallian period.
C) Hauser's law.
D) the Laffer curve.
E) the total revenue curve.

Following all guidelines for perfect answers, illustrate and calculate (algebraically) the market
equilibrium when QD = 10 – 0.5ꞏP; QS = 0.5ꞏP.
 
 31

 
 
1)  If in absolute terms the percentage change in the quantity demanded is less 
than the percentage change in price, then demand is  
A)  inferior.  
B)  normal.  
C)  elastic.  
D)  inelastic.  
  
 
2)  When a goodʹs income elasticity is _____ it is characterized as _____  
A)  greater than one; necesssity  
B)  negative; complements  
C)  positive; inferior  
D)  all of the above  
E)  none of the above  

3)  Suppose that demand is perfectly inelastic and the elasticity of supply is 3.  
If a tax causes a 6% decrease in supply we would expect the new 
equilibrium price to increase by  
A)  0.5%  
B)  0%  
C)  12%  
D)  2%  

4)  A 10% increase in price leads to a 20% decrease in the quantity demanded. 
The price elasticity of demand equals  
A)  0.5.  
B)  2.  
C)  20.  
D)  10.  
E) 
 32

1)  If in absolute terms the percentage change in the quantity demanded is less 
than the percentage change in price, then demand is  
A)  inferior.  
B)  normal.  
C)  elastic.  
D)  inelastic.  
  
 
2)  When a goodʹs income elasticity is _____ it is characterized as _____  
A)  greater than one; necesssity  
B)  negative; complements  
C)  positive; inferior  
D)  all of the above  
E)  none of the above  

3)  Suppose that demand is perfectly inelastic and the elasticity of supply is 3.  
If a tax causes a 6% decrease in supply we would expect the new 
equilibrium price to increase by  
A)  0.5%  
B)  0%  
C)  12%  
D)  2%  

4)  A 10% increase in price leads to a 20% decrease in the quantity demanded. 
The price elasticity of demand equals  
A)  0.5.  
B)  2.  
C)  20.  
D)  10.  
E)  
 33

1)  A firm is currently producing in the elastic portion of its demand curve. 
What course of action do you recommend for it assuming it wants to raise 
revenue?  
A)  Increase price because marginal revenue is positive  
B)  Decrease price because marginal revenue is positive  
C)  Decrease price because marginal revenue is negative  
D)  Increase price because marginal revenue is negative  
 
  
2)  A government that increases taxes to raise revenue  
A)  believes that it is on the left side of the Laffer curve  
B)  believes that it is on the left side of the Envelope curve  
C)  believes that it is on the right side of the Envelope curve  
D)  believes that it is on the right side of the Laffer curve  

3)  If a 15% price increase generates a 5% decrease in quantity demanded, then 
demand is   
A)  elastic.  
B)  unit elastic.  
C)  inelastic.  
D)  perfectly elastic.  
E)  perfectly inelastic .  
  
 
4)  At a price of $4, quantity supplied is 100; and at a price of $6, quantity 
supplied is 120.  The price elasticity of supply is ________ .  
A)  0.1  
B)  2.2  
C)  10  
D)  0.45  
  
 
5)  Suppose that demand is perfectly inelastic.  The effect of a tax is  
A)  consumer and producer burden is shared equally  
B)  producer burden equals the governmentʹs revenue  
C)  consumer burden equals the governmentʹs revenue  
D)  none of the above 
  
 
 34

1)  A firm is currently producing in the elastic portion of its demand curve. 
What course of action do you recommend for it assuming it wants to raise 
revenue?  
A)  Increase price because marginal revenue is positive  
B)  Decrease price because marginal revenue is positive  
C)  Decrease price because marginal revenue is negative  
D)  Increase price because marginal revenue is negative  
 
  
2)  A government that increases taxes to raise revenue  
A)  believes that it is on the left side of the Laffer curve  
B)  believes that it is on the left side of the Envelope curve  
C)  believes that it is on the right side of the Envelope curve  
D)  believes that it is on the right side of the Laffer curve  

3)  If a 15% price increase generates a 5% decrease in quantity demanded, then 
demand is   
A)  elastic.  
B)  unit elastic.  
C)  inelastic.  
D)  perfectly elastic.  
E)  perfectly inelastic .  
  
 
4)  At a price of $4, quantity supplied is 100; and at a price of $6, quantity 
supplied is 120.  The price elasticity of supply is ________ .  
A)  0.1  
B)  2.2  
C)  10  
D)  0.45  
  
 
5)  Suppose that demand is perfectly inelastic.  The effect of a tax is  
A)  consumer and producer burden is shared equally  
B)  producer burden equals the governmentʹs revenue  
C)  consumer burden equals the governmentʹs revenue  
D)  none of the above 
 35

 1)  One thing that we ALWAYS know about tax burden is  
A)  it is regressive  
B)  consumers pay some of the burden  
C)  the elastic sector pays the majority of the burden  
D)  the inelastic sector pays the majority of the burden  
E)  it is progressive  

2)  If a 2% change in price leads to a ________ % change in the quantity 
demanded, then demand is ________.  
A)  2; elastic  
B)  0; perfectly elastic  
C)  4; elastic  
D)  3; inelastic  
E)  1; unit elastic  
  
 
3)  The marginal revenue curve associated with a linear downward sloping 
demand curve  
A)  has a q‐intercept where demand is unitary elastic  
B)  has a P‐intercept at the choke price  
C)  lies below the demand curve  
D)  all of the above  
E)  none of the above  
  
 
 
4)  If UTD builds another dorm and first‐year enrollment further increases we 
would expect the equilibrium price of a dorm room to _____ and the 
equilibrium quantity to _____  
A)  be uncertain; decrease  
B)  increase; be uncertain  
C)  decrease; be uncertain  
D)  be uncertain; increase  
  
 
 
5)  In output (product) markets, the elasticity of supply tends to be  
A)  positive.  
B)  zero.  
C)  negative.  
D)  all of the above owing to the potential for a backward‐bending curve.  
 36

 1)  One thing that we ALWAYS know about tax burden is  
A)  it is regressive  
B)  consumers pay some of the burden  
C)  the elastic sector pays the majority of the burden  
D)  the inelastic sector pays the majority of the burden  
E)  it is progressive  

2)  If a 2% change in price leads to a ________ % change in the quantity 
demanded, then demand is ________.  
A)  2; elastic  
B)  0; perfectly elastic  
C)  4; elastic  
D)  3; inelastic  
E)  1; unit elastic  
  
 
3)  The marginal revenue curve associated with a linear downward sloping 
demand curve  
A)  has a q‐intercept where demand is unitary elastic  
B)  has a P‐intercept at the choke price  
C)  lies below the demand curve  
D)  all of the above  
E)  none of the above  
  
 
 
4)  If UTD builds another dorm and first‐year enrollment further increases we 
would expect the equilibrium price of a dorm room to _____ and the 
equilibrium quantity to _____  
A)  be uncertain; decrease  
B)  increase; be uncertain  
C)  decrease; be uncertain  
D)  be uncertain; increase  
  
 
 
5)  In output (product) markets, the elasticity of supply tends to be  
A)  positive.  
B)  zero.  
C)  negative.  
D)  all of the above owing to the potential for a backward‐bending curve.  
 37

 1)  The cross‐price elasticity of demand between good X and good Y is 0.5.  
Given this information, which of the following statements is TRUE?  
A)  Goods X and Y are nornal.  
B)  Goods X and Y are substitutes.  
C)  Goods X and Y are necessities.  
D)  Goods X and Y are complements.  
  
 
2)  A firm can sell 10 units if the price is $100 and can sell 8 units if the price is 
$125. What is the price elasticity of demand?  
A)  1.00  
B)  1.25  
C)  0.50  
D)  0.75  
E)  0.0  
  
 

3)  If the elasticity of labor supply is positive, the labor supply curve would be  
A)  forward falling.  
B)  upward sloping.  
C)  backward bending.  
D)  downward sloping.  
  
 
 
4)  If both equilibrium price and quantity decrease this can only be the result of  
A)  an increase in demand  
B)  a decrease in supply  
C)  a decrease in demand  
D)  an increase in supply  
 38

 
1)  The cross‐price elasticity of demand between good X and good Y is 0.5.  
Given this information, which of the following statements is TRUE?  
A)  Goods X and Y are nornal.  
B)  Goods X and Y are substitutes.  
C)  Goods X and Y are necessities.  
D)  Goods X and Y are complements.  
  
 
2)  A firm can sell 10 units if the price is $100 and can sell 8 units if the price is 
$125. What is the price elasticity of demand?  
A)  1.00  
B)  1.25  
C)  0.50  
D)  0.75  
E)  0.0  
  

3)  If the elasticity of labor supply is positive, the labor supply curve would be  
A)  forward falling.  
B)  upward sloping.  
C)  backward bending.  
D)  downward sloping.  
  
 
 
4)  If both equilibrium price and quantity decrease this can only be the result of  
A)  an increase in demand  
B)  a decrease in supply  
C)  a decrease in demand  
D)  an increase in supply  
Following all guidelines for perfect answers, illustrate and calculate (algebraically) the market 
equilibrium price and quantity when QD = 240  8P; QS = 4P. 
 
 
 40

Following all guidelines for perfect answers, illustrate and calculate (algebraically) the market 
equilibrium price and quantity when QD = 240  8P; QS = 4P. 
 
 
 41

Questions:

1. For a linear demand curve, quantity demand becomes more

price-sensitive
A. as price increases.
B. as price decreases.
C. at prices around the price midpoint.
D. if the quantity intercept is negative.

2. If the demand for a product falls and so does the supply, we

expect equilibrium price to ____ and quantity to _____ .
A. rise; be ambiguous.
B. be ambiguous; fall.
C. fall; be ambiguous.
D. be ambiguous; rise.

3. At any point to the left of the Lewis turning point on the

labor supply curve the elasticity of supply is
A. positive.
B. negative.
C. perfectly inelastic.
D. perfectly elastic.

4. If a manager believes that lowering prices will increase

revenue, she must be
A. mistaken.
B. assuming that demand is inelastic.
C. assuming that demand is elastic.
D. assuming that demand is unitary elastic.
 42

1. For a linear demand curve, quantity demand becomes more

price-sensitive
A. as price increases.
B. as price decreases.
C. at prices around the price midpoint.
D. if the quantity intercept is negative.

2. If the demand for a product falls and so does the supply, we

expect equilibrium price to ____ and quantity to _____ .
A. rise; be ambiguous.
B. be ambiguous; fall.
C. fall; be ambiguous.
D. be ambiguous; rise.

3. At any point to the left of the Lewis turning point on the

labor supply curve the elasticity of supply is
A. positive.
B. negative.
C. perfectly inelastic.
D. perfectly elastic.

4. If a manager believes that lowering prices will increase

revenue, she must be
A. mistaken.
B. assuming that demand is inelastic.
C. assuming that demand is elastic.
D. assuming that demand is unitary elastic.
 43

1. The price a producer receives net of a tax is the price

corresponding to
A. the pre-tax supply curve at the new equilibrium price.
B. the new supply curve at the new equilibrium price.
C. the pre-tax supply curve at the new equilibrium quantity.
D. the new supply curve at the new equilibrium quantity.

2. If income increases from $100,000 to $120,000 and the

consumer increases her purchases of a good from 100 to 120,
we know that the good is
A. inelastic.
B. elastic.
C. unitary elastic.
D. normal.
E. inferior.

3. For a linear demand curve, the associated marginal revenue

curve
A. shares the same P-intercept.
B. has a q-intercept at the q-midpoint of the demand curve.
C. lies on or below the demand curve.
D. all of the above.

4. Classifying goods as substitutes refers to

A. cross-price elasticity of demand.
B. (own) price elasticity of demand.
C. income elasticity of demand.
D. elasticity of supply.

5. The Laffer curve tells us that when tax rates increase,

A. tax revenues increase.
B. tax revenues decrease.
C. tax revenues first rise and then fall.
D. tax revenues first fall and then rise.
 44

1. The price a producer receives net of a tax is the price

corresponding to
A. the pre-tax supply curve at the new equilibrium price.
B. the new supply curve at the new equilibrium price.
C. the pre-tax supply curve at the new equilibrium quantity.
D. the new supply curve at the new equilibrium quantity.

2. If income increases from $100,000 to $120,000 and the

consumer increases her purchases of a good from 100 to 120,
we know that the good is
A. inelastic.
B. elastic.
C. unitary elastic.
D. normal.
E. inferior.

3. For a linear demand curve, the associated marginal revenue

curve
A. shares the same P-intercept.
B. has a q-intercept at the q-midpoint of the demand curve.
C. lies on or below the demand curve.
D. all of the above.

4. Classifying goods as substitutes refers to

A. cross-price elasticity of demand.
B. (own) price elasticity of demand.
C. income elasticity of demand.
D. elasticity of supply.

5. The Laffer curve tells us that when tax rates increase,

A. tax revenues increase.
B. tax revenues decrease.
C. tax revenues first rise and then fall.
D. tax revenues first fall and then rise.
 45

1. Slope is ____ of the units of measurement of the independent

variable and elasticity is ____ the units of measurement of the
dependent variable.
A. dependent on; independent of
B. dependent on; dependent on
C. independent of; dependent on
D. independent of; independent of

2. If demand is relatively more elastic than supply,

A. consumers bear the majority of the burden of a tax.
B. producers bear the majority of the burden of a tax.
C. consumers bear the entire burden of a tax.
D. producers bear the entire burden of a tax.

3. If a good is a luxury then it is a ____ good and its associated

elasticity is _____
A. normal; greater than one.
B. complementary; negative.
C. substitute; positive.
D. backward-bending; negative.

4. The range associated with a good’s cross-price elasticity is

A. between - and .
B. between - and 0.
C. between 0 and .
D. between 0 and 1.
 46

1. Slope is ____ of the units of measurement of the independent

variable and elasticity is ____ the units of measurement of the
dependent variable.
A. dependent on; independent of
B. dependent on; dependent on
C. independent of; dependent on
D. independent of; independent of

2. If demand is relatively more elastic than supply,

A. consumers bear the majority of the burden of a tax.
B. producers bear the majority of the burden of a tax.
C. consumers bear the entire burden of a tax.
D. producers bear the entire burden of a tax.

3. If a good is a luxury then it is a ____ good and its associated

elasticity is _____
A. normal; greater than one.
B. complementary; negative.
C. substitute; positive.
D. backward-bending; negative.

4. The range associated with a good’s cross-price elasticity is

A. between - and .
B. between - and 0.
C. between 0 and .
D. between 0 and 1.
 47

Following all guidelines for perfect answers, illustrate and calculate (algebraically) the 
market equilibrium price and quantity when QD = 300  4P; QS = 8P. 
 48

Following all guidelines for perfect answers, illustrate and calculate (algebraically) the market
equilibrium price and quantity when QD = 300  4P; QS = 8P.
 49

1. If the price of Y increases by 25% and the quantity demanded of

X decrease by 10% then the associated elasticity has a value of
____ and the goods are _____.
A. 2.50; substitutes.
B. -2.50; complements.
C. 0.40; substitutes.
D. -0.40; complements.

2. Elasticity of supply is always positive for _____ but can be

negative for _____.
A. labor markets; product markets
B. product markets; labor markets
C. the supply of green parking stickers at UTD; economic
development with unlimited supply of labor.
D. economic development with unlimited supply of labor; the
supply of green parking stickers at UTD.

3. “Sin taxes” are taxes on items such as cigarettes and

alcohol. A government typically imposes sin taxes because it
believes that ____ is relatively inelastic and therefore the tax
burden will fall on _____.
A. supply; producers.
B. supply; consumers.
C. demand; consumers.
D. demand; producers.

4. Suppose the price of corn rises, causing the supply of ethanol to

decrease by 10%. If ED = 1 and ES = 1 then we would expect the
price of ethanol to _______.
A. rise 1%
B. fall 1%
C. rise 10%
D. fall 5%
E. rise 5%

5. Taxes shift a perfectly inelastic supply curve

A. to the right.
B. to the left.
C. up.
D. down.
E. none of the above.
 50

1. If the price of Y increases by 25% and the quantity demanded of

X decrease by 10% then the associated elasticity has a value of
____ and the goods are _____.
A. 2.50; substitutes.
B. -2.50; complements.
C. 0.40; substitutes.
D. -0.40; complements.

2. Elasticity of supply is always positive for _____ but can be

negative for _____.
A. labor markets; product markets
B. product markets; labor markets
C. the supply of green parking stickers at UTD; economic
development with unlimited supply of labor.
D. economic development with unlimited supply of labor; the
supply of green parking stickers at UTD.

3. “Sin taxes” are taxes on items such as cigarettes and

alcohol. A government typically imposes sin taxes because it
believes that ____ is relatively inelastic and therefore the tax
burden will fall on _____.
A. supply; producers.
B. supply; consumers.
C. demand; consumers.
D. demand; producers.

4. Suppose the price of corn rises, causing the supply of ethanol to

decrease by 10%. If ED = 1 and ES = 1 then we would expect the
price of ethanol to _______.
A. rise 1%
B. fall 1%
C. rise 10%
D. fall 5%
E. rise 5%

5. Taxes shift a perfectly inelastic supply curve

A. to the right.
B. to the left.
C. up.
D. down.
E. none of the above.