Microeconomics Exam II
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MicroEconomics Exam II
- 1.The price elasticity of demand for furniture is estimated at 1.3. This value means a 1% increase in the
- A.
Quantity of furniture demanded will increase the price of furniture by 1.3%.
- B.
Price of furniture will increase the quantity of furniture demanded by 1.3%.
- C.
Quantity of furniture demanded will decrease the price of furniture by 1.3%.
- D.
Price of furniture will decrease the quantity of furniture demanded by 1.3%.
- 2.Donuts and coffee are complements. When the price of a donut increases, the demand for coffee ________ and the cross elasticity of demand for coffee with respect to the price of a donut is _________.
- A.
Decreases; positive
- B.
Decreases; negative
- C.
Increases; negative
- D.
Increases; positive
- 3.If Sam wants to increase her total revenue from her sales of flowers and she knows that the demand for flowers is price elastic, she should
- A.
Raise her price because she knows that the percentage decrease in the quantity demanded will be smaller than the percentage increase in price.
- B.
Raise her price because she knows that the percentage increase in the quantity demanded will be greater than the percentage decrease in price.
- C.
Raise her price because she knows that the quantity demanded will also increase.
- D.
Lower her price to increase the demand and shift the demand curve rightward.
- 4.You are the new vice president in charge of advertising at Taco Bell. In your upcoming advertising campaign, you plan to degrade the fast food competitor whose product is the closest substitute for Taco Bell's tacos. That would be the fast food chain whose cross elasticity of demand with your tacos is equal to
- A.
+1.55
- B.
-2.11
- C.
-1.75
- D.
+1.00
- 5.When consumers' incomes increased 10%, the quantity of milk bought increased 5%. This result means
- A.
Milk is an inferior good.
- B.
The demand for milk is income elastic.
- C.
Milk is a luxury.
- D.
Milk is a necessity.
- 6.A decrease in the price of eggs from $1.50 to $1.30 per dozen resulted in an increase in egg purchases in two ities. In Philadelphia, daily egg purchases increased from 6000 to 8000 dozens; in nearby Dover, Deleware, daily egg purchases increased from 300 to 400 dozens. The price elasticity of demand is therefore
- A.
The same in Philadelphia as in Dover.
- B.
Greater in the smaller city as would be expected.
- C.
Certainly affected by population differences in different markets.
- D.
Lower in the smaller city as would be expected.
- 7.If the price of a burger decreases by 5% and as a result the quantity of burgers demanded increases by 8%, the price elasticity of demand equals
- A.
0.60
- B.
1.60
- C.
0.40
- D.
0.625
- 8.If University of Nebraska increased its season football ticket sales from 43,000 to 47,000 when it lowered price from $350.00 to $300.00, then its demand for season tickets must be __________ because total revenue __________ when the price was lowered.
- A.
Elastic; increased
- B.
Elastic; decreased
- C.
Inelastic; increased
- D.
Inelastic; decreased
- 9.When Sam's annual income was only $15,000, he purchased 50 pounds of bananas a year. When his income rose to $18,000, he purchased 55 pounds a year. Therefore,
- A.
For Sam, bananas are a normal good.
- B.
His income elasticity of demand for bananas is negative.
- C.
His income elasticity and price elasticity of demand for bananas are both greater than 1.
- D.
For Sam, bananas are an inferior good.
- 10.As time passes after a change in the price, the supply of a good or servie
- A.
Becomes more elastic.
- B.
Initially becomes more elastic and then becomes less elastic.
- C.
Initially becomes less elastic and then becomes more elastic.
- D.
Becomes less elastic.
- 11."Last October, due to an early frost, the price of a pumpkin increased by 10% compared to the price in the previous Halloween season. As a result, the quantity demanded county-wide decreased from 2M to 1.5M." Based on this statement, it is certain that the
- A.
Total revenue from the sale of pumpkins decreased.
- B.
Demand curve for pumpkins shifted leftward.
- C.
Price elasticity of demand for pumpkins decreased from its value in previous years.
- D.
Demand curve for Halloween costums shifted leftward.
- 12.The cross-elasticity of demand between Homer's Holesome Doughnuts and Krusty's Krispy Crullers is 5.0, which indicates that Homer's doughnuts and Krusty's crullers are
- A.
Substitutes and the relationship between the two goods is strong (that is, the quantity demanded of doughnuts is very responsive to changes in the price of crullers).
- B.
Complements and the relationship between the two goods is weak (that is, the quantity demanded of doughnuts is not very responsive to changes in the price of crullers).
- C.
Complements and the relationship between the two goods is strong (that is, the quantity demanded of doughnuts is very responsive to changes in the price of crullers).
- D.
Substitutes and the relationship between the two goods is strong (that is, the quantity demanded of doughnuts is not very responsive to changes in the price of crullers).
- 13.If the elasticity of demand for peaches is 1.76 and the elasticity of demand for apples is 1.59, then consumers are
- A.
More sensitive to a change in the price of peaches than they are to a change in the price of apples.
- B.
Less sensitive to a change in the quantity of peaches than they are to a change in the quantity of apples.
- C.
Less sensitive to a change in the price of peaches than they are to a change in the price of apples.
- D.
More sensitive to a change in the quantity of peaches than they are to a change in the quantity of apples.
- 14.Taco Bell's economists determine that the price elasticity of demand for their tacos is 2.0. So, if Taco Bell raises the price of its tacos by 6.0%, the quantity demanded will decrease by __________ %.
- A.
3.0
- B.
12.0
- C.
2.0
- D.
6.0
- 15.If the demand curve for oranges is a downward sloping straight line, the price elasticity of demand will increase the
- A.
Lower the price of oranges.
- B.
Higher the income level of consumers.
- C.
Higher the price of other fruits.
- D.
Higher the price of oranges.
- 16.To maximize its revenue,
- A.
A firm should always charge the highest price possible regardless of the elasticity of demand.
- B.
A firm facing classic demand should always raise its price.
- C.
A firm facing inelastic demand should always raise its price.
- D.
None of the above answers is correct.
- 17.Demand is price inelastic if a relatively __________ price increase leads to a relatively __________ in the quantity demanded.
- A.
Large; small increase
- B.
Small; large increase
- C.
Small; large decrease
- D.
Large; small decrease
- 18.Price ceilings, such as rent ceilings, set below the equilibrium price
- A.
Might increase or decrease producer surplus.
- B.
Do not affect producer surplus.
- C.
Decrease producer surplus.
- D.
Increase producer surplus.
- 19.In general, how a sales tax is divided between buyers and sellers is determined by
- A.
Who the law says must pay the tax.
- B.
The government's choice of whom to tax.
- C.
The revenue needs of government.
- D.
The elasticities of supply and demand.
- 20.The supply of oil is more elastic than the demand for oil. If oil is $10/barrel, how will the tax be divided between the buyers and sellers?
- A.
The sellers and buyers will split the tax evenly.
- B.
The sellers will pay more of the tax than the buyers.
- C.
The buyers will pay more of the tax than the sellers.
- D.
The sellers will pay the entire tax.
- 21.The amount of a tax paid by the sellers will be larger the more __________ the demand and the more _________ the supply.
- A.
Elastic; elastic
- B.
Inelastic; inelastic
- C.
Inelastic; elastic
- D.
Elastic; inelastic
- 22.A price ceiling is a price
- A.
Above which a seller cannot legally sell.
- B.
Below which a seller cannot legally sell.
- C.
That creates a surplus of the good.
- D.
Above which a seller cannot legally sell and one that creates a surplus of the good.
- 23.A price floor
- A.
Always results in a shortage.
- B.
Results in a surplus if the floor price is greater than the equilibrium price.
- C.
Always results in a surplus.
- D.
Results in a shortage if the floor price is greater than the equilibrium price.
- 24.Assume that your state government has placed a price ceiling of $0.20/KW hour of electricity. The equilibrium price per KW hour for electricity is $0.25. The government's action will result in
- A.
A deadweight loss occurring.
- B.
An increase in the price of electricity to $0.25/KW hour.
- C.
An increase in producer surplus.
- D.
A surplus of electricity in the electricity market.
- 25.Sherry wants to rent an apartment. Although rents are below what she is willing to pay, she cannot find an apartment. Then after a month of searching, she finds an apartment but she has to pay an additional $1000 to have the locks changed. Sherry has just experienced the effects of ___________.
- A.
A market working efficiently
- B.
Inelastic demand
- C.
A rent ceiling
- D.
A rent floor with a black market
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