Chapter 4: Market Demand and Elasticity
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1. Which of the following is/are correct in regard to the market demand curve?
a. it is constructed by horizontally summing all of the individual demand curves for the good
b. consumer incomes and preferences are fixed along any given demand curve
c. the prices of related goods are fixed along any given demand curve
d. all of the above are correct

2. . If most buyers regard two goods X and Y as _______________, then when the price of good Y increases, the market demand for good X will __________________.
a. substitutes, shift inward
b. substitutes, shift outward
c. complements, shift outward
d. both a and c

3. If most people view good X as a(n) ___________________ , then when incomes rise, the market demand for good X will _________________
a. normal good, shift inward
b. inferior good, shift outward
c. normal good, shift outward
d. both b and c

4. Which of the following is NOT likely to result in an inward shift of the market demand for illegal drugs?
a. a successful anti-drug use campaign by the government
b. a decrease in the incomes of illegal drug users
c. increased government seizures of illegal drugs
d. harsher criminal penalties for illegal drug use

5. The price elasticity of demand measures:
a. the percentage change in quantity demanded of a good in response to a one percentage change in income
b. the change in the number of units demanded of a good in response to a one percentage change in its price
c. the percentage change in quantity demanded of a good in response to a one dollar change in its price
d. none of the above

6. . If the value of the price elasticity of demand at a point on a demand curve is less than -1, then demand is said to be ______________ at this point.
a. elastic
b. inelastic
c. unit elastic
d. increasing

7. If demand is inelastic, a small reduction in price will cause total expenditures on the good to:
a. rise
b. fall
c. remain constant
d. any of the above is a possibility

8. Consider the market demand curve for apples, which relates the quantity demanded of apples (in thousands of bushels) to various prices of apples. Suppose that the price elasticity of demand for apples is -2. If the price of apples increases by 3 percent, then by how much will the quantity demanded of apples decrease?
a. by 2 thousand bushels
b. by 6 thousand bushels
c. by 2 percent
d. by 6 percent
e. none of the above

9. Suppose you are an amusement park operator. Upon raising the price of the "Thrill-a-Coaster" by 5 percent you discover that ridership on the coaster decreases by 10 percent.. The price elasticity of demand for rides on Thrill-a-Coaster is:
a. -0.2
b. -0.5
c. -1.0
d. -2.0
e. none of the above

10. The value of the price elasticity of demand for rides on Thrill-a-Coaster that you found in question 9 would imply that the price elasticity of demand for Thrill-a-Coaster rides is:
a. elastic
b. inelastic
c. unit elastic
d. the elasticity cannot be determined with the information given

11. In question 10, you determined whether demand for Thrill-a-Coaster rides is elastic, inelastic, or unit elastic. Based on this information, what happened to total consumer spending on Thrill-a-Coaster after your 5 percent price increase?
a. it decreased
b. it increased
c. it remained the same
d. the change in total expenditures cannot be determined

12. If, after the 5 percent price increase on Thrill-a-Coaster (described in question 9), you find that ridership increases for another attraction, "Devil's Drop", you can conclude that the cross-price elasticity for changes in the price of Thrill-a-Coaster on the demand for rides on Devil's Drop must be:
a. positive
b. negative
c. zero
d. the sign of the cross-price elasticity cannot be determined

13. Consider the linear demand curve given by: P = 100 - 2Q (or equivalently, Q = 50 - 1/2P). Which of the following statements is correct?
a. At prices below $50 demand is elastic, while at prices above $50 demand is inelastic
b. At prices below $50 demand is inelastic, while at prices above $50 demand is unit elastic
c. At prices below $50 demand is inelastic, while at prices above $50 demand is elastic
d. The price elasticity is constant along the demand curve given

14. For a unitary elastic demand curve, the price elasticity of demand is everywhere ___________ and total expenditures on the good ________________ as price increases.
a. - 1, increases
b. - 1, decreases
c. - 1, remain constant
d. undefined, increases

15. Your text reports the results of a study that finds the price elasticity of demand for beer is -0.26. Based on this estimate, if the price of beer were to increase by a small amount, then total expenditures on beer will:
a. rise
b. fall
c. remain unchanged
d. the change in total expenditures cannot be determined

16. For normal goods, the income elasticity of demand is:
a. negative
b. zero
c. positive
d. undefined

17. Your text reports the results of a study that finds the income elasticity of demand for owner-occupied housing is 1.20. This would suggest that owner-occupied housing is
a. a normal good
b. a luxury good
c. an inferior good
d. both a and b
e. both b and c

18. If goods X and Y are substitute goods, then the cross-price elasticity of the price of good Y on the demand for good X is:
a. positive
b. negative
c. zero
d. undefined

19. Suppose that the cross-price elasticity of the price of good Y on the demand for good X is -0.80. This suggests that:
a. goods X and Y are luxury goods
b. goods X and Y are inferior goods
c. goods X and Y are complements
d. goods X and Y are substitutes

20. Suppose that the cross-price elasticity of the price of oranges on the demand for apples is 1.6. Then, if the price of oranges were to decrease by 2 percent,
a. the quantity demanded of apples would increase by 3.2 percent
b. the quantity demanded of apples would decrease by 3.2 percent
c. the quantity demanded of apples would increase by 1.6 percent
d. the quantity demanded of apples would decrease by 1.6 percent



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