Econ 101: Exam 2 questions and correct answers

Econ 101: Exam 2 When the price goes down, the quantity demanded goes up. The price elasticity of demand measures: A) how much the price goes down. B) how much the equilibrium price goes up. C) the responsiveness of the price change to an income change. D) the responsiveness of the quantity change to the price change. - ANSWER D 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) 5; inelastic C) 0.2; elastic D) 5; elastic - ANSWER A The ratio of the percentage change in quantity demanded to the percentage change in price is the _____ elasticity of demand. A) price B) quantity C) income D) cross-price - ANSWER A The price elasticity of demand can be found by: A) examining only the slope of the demand curve. B) measuring absolute changes in price and quantity demanded. C) comparing the percentage change in quantity demanded to the percentage change in price. D) knowing that when price changes, quantity demanded goes in the opposite direction. - ANSWER C If the estimated price elasticity of demand for foreign travel is 4: A) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%. B) the 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%. - ANSWER A 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) 1%. C) 5%. D) 50%. - ANSWER D Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. According to this finding, the price elasticity of demand for gas is: A) 5. B) 2. C) 0.2. D) 0.5. - ANSWER C The only producer of chocolate bunnies in the world, Choco's Bunny Company, recently expanded its production capacity from 1,000 to 2,000 bunnies per day. If the price elasticity of demand for bunnies is 3.33, by how much will the company have to reduce its price to sell the additional 1,000 bunnies (by the midpoint method)? A) 2.5% B) 25% C) 125% D) 20% - ANSWER D Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing: A) different elasticities, depending on whether price decreases or increases. B) different elasticities, because price and quantity are inversely related on the demand curve. C) total revenue when price falls and demand is inelastic. D) total revenue when price falls and demand is elastic. - ANSWER A 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. - ANSWER A Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the overall demand for cheeseburgers is: A) price elastic. B) price inelastic. C) price unit-elastic. D) perfectly price inelastic - ANSWER B The price elasticity of demand for skiing lessons in New Hampshire is over 1. This means that the demand is _____ in New Hampshire. A) price elastic B) price inelastic C) price unit-elastic. D) perfectly price elastic - ANSWER A A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, "How many of you will transfer to another university because of the increase in tuition?" One student in 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. - ANSWER C 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) not change. C) fall slightly. D) increase slightly. - ANSWER