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OLQ5

1. If two goods are substitutes, their cross-price elasticity of demand should be: A) less than 0. B) C) D) negative, yet almost equal to 0. equal to 0. greater than 0.

2. The long-run price elasticity of supply of crude oil is ________ the short-run price elasticity of supply of crude oil. A) less than B) C) D) greater than equal to not comparable to

3. Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the demand for cheeseburgers is: A) price elastic. B) C) D) price inelastic. price unit-elastic. perfectly price inelastic.

4. If the price elasticity of demand is found to be less than one, then demand is: A) price-inelastic. B) C) D) price-elastic. price unit-elastic. positively sloped.

5. When the percentage change in quantity demanded is larger than the percentage change in price, demand is said to be: A) price-inelastic. B) C) D) price unit-elastic. price-elastic. perfectly inelastic.

6. If the absolute value of the price elasticity of demand is found to be 6, then demand is: A) price-inelastic. B) C) D) price-elastic. price unit-elastic. horizontal.
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7. We note that the price of pretzels increases and the demand for tortilla chips decreases, so we can assume that these two goods are: A) unrelated goods. B) C) D) inferior goods. complementary goods. substitute goods.

8. Suppose the price of university sweatshirts increases from $10 to $20, and the quantity supplied increases from 20 to 30. Using the midpoint formula, you calculate the price elasticity of supply to be: A) 0.66. B) C) D) 1.50. 0.60. 1.66.

9. If the quantity supplied responds substantially to a relatively small change in price, supply would be: A) price-elastic. B) C) D) price-inelastic. negatively sloped. insensitive to changes in price.

Use the following to answer question 10: Figure: Market for Lattes

10. (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
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B) C) D)

1.29 2.51 3

Use the following to answer question 11: Table: Market for Pizza

11. (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) C) D) 1. 1.6. 2.

12. 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.

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Use the following to answer question 13: Figure: Demand for Shirts

13. (Figure: Demand for Shirts) The price elasticity of demand for the segment EF, using the midpoint method, is: A) 1.3. B) C) D) 1. 0.7. 0.33.

14. 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.

15. If a good is a luxury item that looms large in the household budget, then the price elasticity of demand will tend to be: A) more price-elastic. B) C) D) less price-elastic. equal to 1. the same as that of a good that is a necessity.

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16. 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) C) D) 1. 2. greater than 2.

17. The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to ________ and demand is described as ________. A) 0.2; inelastic B) C) D) 5; inelastic 0.2; elastic 5; elastic

18. Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by ________%. A) 0.1 B) C) D) 1 5 50

19. If the price of chocolate-covered peanuts increases and the demand for strawberry licorice twists increases, this indicates that these two goods are: A) complementary goods. B) C) D) normal goods. inferior goods. substitute goods.

20. If the price of chocolate-covered peanuts increases and the demand for strawberry-flavored soft drinks decreases, this indicates that these two goods are: A) unrelated goods. B) C) D) complementary goods. inferior goods. substitute goods.

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21. Paolo owns a pizza shop. The price of pizza recently increased from $3 to $5 a slice. Paolo responded by increasing the quantity of slices he supplied from 100 to 150 slices per day. Using the midpoint method, calculate Paolo's price elasticity of supply. A) 5/4 B) C) D)
4 3 5

/5 /4

/2

22. The elasticity of demand for Gala apples is relatively elastic, so if a tax is levied on the consumers of Gala apples, the cost of the tax: A) typically falls on the consumer. B) C) D) typically falls on the producer. is typically split equally between the consumer and the producer. cannot be determined without more information.

23. Deadweight losses arising from the presence of an excise tax are greatest when demand: A) and supply are relatively inelastic. B) C) D) is relatively inelastic and supply is relatively elastic. is relatively elastic and supply is relatively inelastic. and supply are relatively elastic.

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

24. (Scenario: Price Elasticity) Using the midpoint formula, what is the price elasticity of demand between $1.25 and $1.00? A) 0.60 B) C) 0.82 1.0
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D)

1.6

25. 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) C) D) highly elastic. highly inelastic. 0.

26. Prior to any taxes, suppose the equilibrium price of gasoline is $3 per gallon. A $1 tax is levied on each gallon of gas that is supplied. As a result, the price of gasoline rises to $3.75 per gallon. The revenue raised by the $1 tax is: A) $0.25 paid by consumers, $0.75 paid by producers. B) C) D) $0.50 paid by consumers, $0.50 paid by producers. $1.00 paid by producers, $0 paid by consumers. $0.75 paid by consumers, $0.25 paid by producers.

27. The price elasticity of demand can be found by: A) examining only the slope of the demand curve. B) C) D) measuring absolute changes in price and quantity demanded. comparing the percentage change in quantity demanded to the percentage change in price. knowing that when price changes, the quantity demanded goes in the opposite direction.

28. The price elasticity of demand along a demand curve with a constant slope: A) is equal to the slope. B) C) D) is greater than the slope. is less than the slope. decreases in absolute value as quantity demanded rises.

29. If an item increases 30% in price and the quantity decreases by 40%, the price elasticity of demand is: A) 0. B) C) D) 1. greater than 1. less than 1, but greater than 0.

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30. Suppose the price elasticity of demand for fishing lures is greater than 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.

Figure: Demand for Notebook Computers

31. (Figure: Demand for Notebook Computers) The change in the firm's total revenue resulting from a change in price from P to T suggests that demand is: A) nonelastic. B) C) D) price-elastic. price-inelastic. price unit-elastic.

32. Suppose the government decides to fight obesity in America by imposing an excise tax on the saturated fat content of food. The effect of this tax would be to: A) lower the profits of ice cream suppliers. B) C) D) decrease revenue for the government. decrease black market activity. raise the profits of ice cream suppliers.

33. To minimize deadweight loss, markets where demand is relatively ________ and supply is relatively ________ should be taxed. A) elastic; inelastic B) elastic; elastic
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C) D)

inelastic; elastic inelastic; inelastic

34. Suppose the price of Vanilla Coke increases by 9% and quantity demanded falls by 13% overall, but only 4% for loyal Coca-Cola customers. This means that for the general public there are ________ for Vanilla Coke, but for loyal Coca-Cola customers, Vanilla Coke is more of a ________ item. This means that Coca-Cola will enjoy an increase in total revenue only from ________. A) several substitutes; necessity; loyal Coca-Cola customers B) C) D) few substitutes; luxury; the general public no substitutes; necessity; the general public several substitutes; necessity; the general public

35. The absolute value of the price elasticity of demand for soft drinks has been estimated to be 0.55. If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacture), how will that affect total expenditures on soft drinks, all other things equal? (Hint: Consider the change in soft drink prices.) A) Total expenditures will remain unchanged. B) C) D) Total expenditures will fall. Total expenditures will rise. People will buy Pepsi instead of Coke.

36. Considering demand only, a tax on which of the following goods would result in a larger deadweight loss? A) gasoline B) C) D) medicine restaurant meals tobacco

37. If an increase in income leads to a decrease in the demand for a good, then the good is said to be: A) normal. B) C) D) a luxury. inferior. a staple or necessity.

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