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Homework answers / question archive / Lone star college system – ECON 2302 ECO 5 1)The price elasticity of demand reflects the responsiveness of: A) firms to changes in demand

Lone star college system – ECON 2302

ECO 5

1)The price elasticity of demand reflects the responsiveness of:

A) firms to changes in demand.

B) demand to a change in price of a substitute good.

C) demand to a change in price.

D) quantity demanded to a change in price.

**2. **

Suppose that Victoria and her friends are running a fundraiser by selling donuts. They want to know what will happen to their revenue if they increase the price of each donut from $0.80 to $1. What concept do they need to apply to find out their expected revenue?

A) price elasticity of supply

B) price elasticity of demand

C) cross elasticity of demand

D) income elasticity of demand

**3. **

If the price elasticity of demand is 0.5, this means that a ________ increase in price causes a ________ decrease in quantity demanded.

A) 20%; 100%

B) 30%; 15%

C) 20%; 1%

D) 5%; 1%

**4. **

Suppose that in a month the price of a dozen of eggs increases from $1.50 to $2. At the same time, the quantity of dozens of eggs demanded decreases from 200 to 150. The price elasticity of demand for dozens of eggs is:

A) perfectly inelastic.

B) inelastic.

C) unitary elastic.

D) elastic.

**5. **

Suppose that in a month the price of tulips increases from $1 to $1.50. At the same time, the quantity of tulips demanded decreases from 200 to 190. The price elasticity of demand for tulips (calculated using the initial value formula. is:

A) 0.1.

B) 0.5.

C) 10.

D) 20.

**6. **

If Juan purchases the same number of gallons of gasoline per week regardless of changes in gasoline price, Juan's demand for gasoline is:

A) perfectly elastic.

B) elastic.

C) perfectly inelastic.

D) inelastic.

**7. **

If the demand curve facing a firm had a price elasticity of demand equal to infinity and the firm raised its price, its total revenue would:

A) decrease slightly.

B) fall to zero.

C) not change.

D) increase.

**8. **

Which of the following products has the most elastic demand?

A) Raspberry Mocha Kona coffee blend at Starbuck's

B) Starbuck's coffee

C) coffee

D) all beverages

**9. **

Demand for low budget items, such as candy, is generally ________ than demand for large budget items, such as automobiles.

A) higher

B) lower

C) more elastic

D) less elastic

**10. **

Demand for items people do not really need for their survival, such as cars, is generally ________ than demand for items such as water.

A) higher

B) lower

C) more elastic

D) less elastic

**11. **

Suppose that OPEC currently sets oil price at $1.50 per gallon, and the current consumption is 100 million gallons per day. The price elasticity of demand for oil is estimated to be 0.7 by the initial value method. If OPEC raises the oil price to $1.80 per gallon,

A) quantity demanded decreases by 10 million gallons while total sales revenue increases by $4.4 million per day.

B) quantity demanded decreases by 14 million gallons while total sales revenue increases by $4.8 million per day.

C) quantity demanded decreases by 10 million gallons and total sales revenue decreases by $4.4 million per day.

D) quantity demanded decreases by 14 million gallons and total sales revenue decreases by $4.8 million per day.

**12. **

Assume that when a lamp manufacturer decreases its price its total revenue does not change. What do we know?

A) Demand is price inelastic.

B) Demand is price elastic.

C) Demand is unitary elastic.

D) Demand is perfectly price elastic.

**13. **

As we move upward along a linear demand curve, the price elasticity of the demand

A) increases.

B) decreases.

C) remains the same.

D) increases up to the midpoint and then decreases.

**14. **

Suppose that ABC Beer Brewer faces a linear demand curve and that the current price for its beer is set at a point where the price elasticity is 1.6. If ABC Beer Brewer increases the product price,

A) the demand becomes more elastic and total revenue increases.

B) the demand becomes less elastic and total revenue increases.

C) the demand becomes more elastic and total revenue decreases.

D) the demand becomes less elastic and total revenue decreases.

**15. **

If a firm facing a linear demand curve experiences an increase in total revenue after lowering the price,

A) the initial price was set at a point where the demand is inelastic.

B) the initial price was set at a point where the demand is elastic.

C) the new price is set where the demand is perfectly elastic.

D) the new price is set where the demand is perfectly inelastic.

**16. **

The demand for a particular good depends on variables such as:

A) consumer income.

B) price of substitutes.

C) price of complements.

D) all of the above

**17. **

If the quantity demanded of restaurant meals increases by 20% when income increases by 10%, the demand for restaurant meals is:

A) price sensitive.

B) income-inelastic.

C) income-elastic.

D) price insensitive.

**18. **

When the price of hamburger went from $3 to $4 a pound, the quantity demanded of buns changed from 30 to 25 packages a day. The cross-price elasticity of demand for buns (using the initial value formula. is:

A) 1.4.

B) 0.5.

C) -0.5.

D) -1.4.

**19. **

Suppose that in a month the price of movie rentals increases from $2 to $2.20. At the same time, the quantity of movie rentals supplied increases from 100 to 110. The price elasticity of supply for movie rentals (calculated using the initial value formula. is:

A) 0.02.

B) 0.2.

C) 1.

D) 50.

**20. **

In Figure 5.3 the most elastic supply curve:

A) is Supply 1.

B) is Supply 2.

C) is Supply 3.

D) Cannot be determined.

**21. **

The quantity supplied of bagels is 100 at the unit price $1. Suppose the price elasticity of supply by the initial value method is 1.5, and you would like to induce sellers to increase the quantity of bagels supplied to 130. Then the new price for bagels must be:

A) $11.

B) $10.20.

C) $1.20.

D) $1.10.

**22. **

Suppose that the price elasticity of supply is 0.8 and the price increases by 10%. We would predict:

A) an 8% increase in quantity supplied.

B) a 12.5% increase in quantity supplied.

C) a 0.8% increase in quantity supplied.

D) a 1.25% increase in quantity supplied.

**23. **

Suppose that the percentage change in demand is 10%, the price elasticity of supply is 2, and the percentage change in the equilibrium price is 3.33%. What is the price elasticity of demand?

A) 0

B) 1

C) 2

D) 3

**24. **

An increase in demand will cause a relatively small increase in price when:

A) the increase in demand is large.

B) demand is highly elastic.

C) supply is highly inelastic.

D) all of the above

**25. **

Suppose that the percentage change in supply is 20%, the price elasticity of demand is 3, and the price elasticity of supply is 2. What is the percentage change in the equilibrium price?

A) 4%

B) 5%

C) 15%

D) 20%

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