Principles of Economics - Eco 2305

Summer II 2013

Instructor: Menelik Geremew

Problem Set #4

Due Date: 07/18/2013

1.When the absolute value of the percentage change in quantity demanded is less than the absolute value of the percentage change in price, demand is:

A)inelastic.

B)elastic.

C)unit-elastic.

D)unknown.

2.Suppose price is initially $20, but then decreases to $15. The absolute value of the percentage change in price (using the midpoint method) is:

A)29%.

B)10%.

C)5%.

D)15%.

Use the following to answer question 3:

Figure: Market for Lattes

3.(Figure: Market for Lattes) In the market for lattes shown in the figure, what is the price elasticity of demand between prices of $2 and $2.50 per cup, using the midpoint formula?

A)1

B)1.29

C)2.51

D)3

4.The Cozy Chair Company believes it can sell 200 chairs at $200 per chair, or 300 chairs at $150 per chair. Using the midpoint formula, the price elasticity of demand (to the nearest tenth) is:

A)2.5.

B)1.4.

C)0.7.

D)0.5.

Use the following to answer question 5:

Table: Market for Pizza

5.(Table: Market for Pizza) The price elasticity of demand for pizza between the prices of $14 and $12 per pizza when income is $1,000 per month is:

A)0.6.

B)1.

C)1.6.

D)2.

Use the following to answer question 6:

Figure: Demand Curve for Oil

6.(Figure: Demand Curve for Oil) What is the approximate price elasticity of demand between $20 and $21, using the midpoint method?

A)0.21

B)0.49

C)2.1

D)4.9

7.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)approximately 0.33.

C)approximately 1.33.

D)1.

8.A men's tie store sold an average of 30 ties per day when the price was $5 per tie but sold 50 of the same ties per day when the price was $3 per tie. The absolute value of the price elasticity of demand, using the midpoint method, is:

A)greater than zero but less than 1.

B)equal to 1.

C)greater than 1 but less than 3.

D)greater than 3.

9.If the price of chocolate-covered peanuts decreases from $1.05 to $0.95 and the quantity demanded increases from 180 bags to 220 bags, this indicates that, if other things are unchanged, the absolute value of the price elasticity of demand using the midpoint method is:

A)0.5.

B)1.

C)2.

D)greater than 2.

Use the following to answer questions 10-11:

Scenario: Price ElasticityWhen calculating price elasticity with the following data, please use the midpoint method and take the absolute value.

Demand and Price Elasticity

10.(Scenario: Price Elasticity) Using the midpoint formula, what is the price elasticity of demand between $2.50 and $2.25?

A)9

B)19

C)119

D)0.5

11.(Scenario: Price Elasticity) Using the midpoint formula, what is the price elasticity of demand between $2.25 and $2.00?

A)4.00

B)5.67

C)9.00

D)17.6

12.Each month Jessica buys exactly 15 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is:

A)0.

B)1.

C)greater than 1.

D)less than 1, but greater than 0.

13.If an item increases 30% in price and the quantity decreases by 40%, the price elasticity of demand is:

A)0.

B)1.

C)greater than 1.

D)less than 1, but greater than 0.

14.The price elasticity of demand for skiing lessons in New Hampshire is over 1.00. This means that the demand is ________ in New Hampshire.

A)price elastic

B)price inelastic

C)price unit-elastic

D)perfectly price elastic

15.Suppose the price of gasoline increases 10% and quantity demanded per day in Orlando drops 5% per day. The price elasticity of demand for gasoline in Orlando is:

A)price elastic.

B)price inelastic.

C)price unit-elastic.

D)perfectly price inelastic.

16.A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, Due to the increase in tuition, how many of you will transfer to another university? One student out of about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is:

A)1.

B)highly elastic.

C)highly inelastic.

D)0.

17.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)a 10% increase in the price of foreign travel will increase quantity demanded by 40%.

D)a 20% increase in the price of foreign travel will increase quantity demanded by 80%.

18.Along the upper end of a linear demand curve, the price elasticity of demand will be:

A)price-inelastic.

B)price-elastic.

C)price unit-elastic.

D)negative.

19.Along the lower end of a linear demand curve, the price elasticity of demand will be:

A)price-inelastic.

B)price-elastic.

C)price unit-elastic.

D)negative.

Use the following to answer questions 20-21:

Figure: Estimating Price Elasticity

20.(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

C)D3

D)D4

21.(Figure: Estimating Price Elasticity) Between the two prices, P1 and P2, which demand curve has the highest price elasticity (absolute value)?

A)D1

B)D2

C)D3

D)D4

22.The cross-price elasticity of demand of complementary goods is:

A)less than 0.

B)equal to 0.

C)greater than 0.

D)between 0 and 1.

23.If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the price of shirts increases from $8 to $12, then, for you, shoes and shirts are considered:

A)inferior goods.

B)luxury goods.

C)substitute goods.

D)complementary goods.

24.Suppose that the cross-price elasticity of demand for Mountain Dew with respect to the price of Coke is 0.7. This implies that the two goods are:

A)substitutes.

B)complements.

C)inferior.

D)normal.

25.If the income elasticity of demand for a good is positive, the good is said to be a(n):

A)inferior good.

B)substitute good.

C)normal good.

D)positive good.

26.If your purchases of shoes increase from 9 pairs per year to 11 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)inferior good.

C)complementary good.

D)substitute good.

27.Eric's income increased from $40,000 to $50,000 per year. Eric's consumption of tickets to pro football games increased from 2 to 4 per year. Using the midpoint formula, his income elasticity of demand for pro football game tickets is equal to ________ and football game tickets are ________ goods.

A)21/3; inferior

B)12/3; normal

C)3; inferior

D)13; normal

28.Suppose the price of real estate increases by 37.11% in Oakland next year. If the quantity of new homes supplied does not change, this means that the price elasticity of ________ will be perfectly ________ in Oakland next year.

A)demand; elastic

B)supply; inelastic

C)demand; inelastic

D)supply; elastic

29.An attorney supplies 40 hours of work per week when her fee is $100 per hour, but supplies 60 hours of work per week when her fee rises to $120 per hour. Using the midpoint formula, her elasticity of supply is equal to ________.

A)1

B)0.8

C)2.2

D)0.45

30.A hotel has a capacity of 100 rooms. Which of the following statements best describes the elasticity of supply for rooms at this hotel?

A)The supply is elastic at quantities above 100 rooms, but inelastic at quantities below 100 rooms.

B)The elasticity of supply is equal to 1 in the short run, but infinitely elastic in the long run.

C)The elasticity of supply is zero in the short run because the short-run supply curve is vertical.

D)The supply is infinitely elastic in the short run, but perfectly inelastic in the long run.

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