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Lecture

Sample Problems ch5.pdf

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Department
Economics
Course
ECN 104
Professor
Tsogbadral Galaabaatar
Semester
Winter

Description
Chapter 5 1. What does the price elasticity of demand measure? a. how responsive buyers are to a change in income b. how responsive sellers are to a change in price c. how responsive buyers are to a change in price d. how responsive sellers are to a change in buyers’ incomes 2. When is demand said to be elastic? a. if the price of the good responds substantially to changes in demand b. if demand shifts substantially when the price of the good changes c. if buyers do not respond much to changes in the price of the good d. if the quantity demanded responds substantiallyto changes in the price of the good 3. When quantity demanded responds only slightly tochanges in price, what is demand said to be? a. unit elastic b. elastic c. inelastic d. perfectly inelastic 4. If a good is a necessity, what would demand for the good tend to be? a. elastic b. horizontal c. unit elastic d. inelastic 5. What does the elasticity of demand for luxuries tend to be? a. greater than 1 b. less than 1 c. equal to 1 d. equal to 0 6. Why would chocolate chip cookie dough ice creamtend to have very elastic demand? a. because it has many complements b. because the market is broadly defined c. because there are few substitutes d. because other flavours of ice cream are almost perfect substitutes 7. There are very few, if any, good substitutes for motor oil. What does this imply? a. The supply of motor oil would tend to be price elastic. b. The demand for motor oil would tend to be priceelastic. c. The demand for motor oil would tend to be priceinelastic. d. The demand for motor oil would tend to be income elastic. 8. How do economists compute the price elasticity of demand? a. the percentage change in the price divided by the percentage change in quantity demanded b. the change in quantity demanded divided by the change in the price c. the percentage change in the quantity demanded divided by the percentage change in price d. the percentage change in the quantity demanded divided by the percentage change in income 9. Holding all other forces constant, when the price of gasoline rises, why would the number of gallons of gasoline demanded fall substantially over a ten-year period? a. because buyers tend to be much less sensitive to a change in price when given more time to react b. because buyers will have substantially more income over a ten-year period c. because buyers tend to be much more sensitive to a change in price when given more time to react d. because gasoline has no substitutes 10. Suppose the price of Twinkies is reduced from $1.45 to $1.25 and, as a result, the quantity of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, what is the price elasticity of demand for Twinkies in the given price range? a. 0.64 b. 1.00 c. 0.75 d. 1.56 Figure 5-1 11. Refer to Figure 5-1. What is the elasticity of demand from point A topoint B, using the midpoint method? a. 0.4 b. 1 c. 1.5 d. 2.5 12. Refer to Figure 5-1. If the price decreased from $18 to $6, what would happen to total revenue? What would this imply about demand elasticity? a. Total revenue would increase by $1200 and demand would be elastic. b. Total revenue would increase by $800 and demand would be elastic. c. Total revenue would decrease by $1200 and demand would be inelastic. d. Total revenue would decrease by $800 and demand would be inelastic. Figure 5-2 13. Refer to Figure 5-2. As price falls from PAto P B which demand curve is most elastic? a. D 1 b. D 2 c. D 3 d. All of the above are equally elastic. 14. What does a flatter demand curve represent? a. greater price elasticity of demand b. smaller price elasticity of demand c. price elasticity of demand that is close to the slope of the curve d. price elasticity of demand that is equal o the slope of the curve 15. What is true about a downward sloping linear demand curve? a. The slope and elasticity are both constant. b. The slope changes but elasticity is constant. c. The slope and elasticity both change. d. The slope is constant but elasticity changes. 16. Moving down a linear demand curve, what happensto elasticity? a. It gets smaller, then larger. b. It gets larger. c. It gets smaller. d. It gets larger, then smaller. 17. Get Smart University is contemplating increasing tuition to increase revenue. What must the school believe? a. The law of demand does not apply. b. The demand for university education is elastic. c. The demand for university education is inelastic. d. The supply of university education is elastic. 18. If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. What do these advocates believe about marijuana? a. The supply for marijuana is price elastic. b. The demand for marijuana is price elastic. c. The supply for marijuana is price inelastic. d. The demand for marijuana is price inelastic. 19. What describes a perfectly elastic demand curve? a. vertical b. horizontal c. downward sloping to the right d. upward sloping to the right 20. What happens in the case of perfectly inelastic demand? a. Quantity demanded stays the same regardless of price changes. b. Huge changes in quantity demanded result from very small changes in the price. c. The change in quantity demanded exactly equals the change in price. d. The change in quantity demanded will be twice the change in price. 21. As elasticity of demand increases, what happens to the demand curve? a. It gets flatter and the price elasticity of demand will eventually be less than 1. b. It gets steeper and the price elasticity of demand will eventually be greater than 1. c. It gets flatter and the price elasticity of demand will eventually be greater than 1. d. It gets steeper and the price elasticity of demand will eventually be less than 1. Figure 5-3 22. Refer to Figure 5-3. What areas represent the total revenue at P1? a. A + B b. B + C c. B + D d. C + D 23. If the demand for doughnuts is elastic, what will a decrease in the price of doughnuts do? a. It will increase the total revenue of doughnut sellers. b. It will decrease the total revenue of doughnut
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