### Quiz 4 of ECON251 Purdue University In Tutorial Library

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### TITLE: Quiz 4 of ECON251 Purdue University

#### CLASS / COURSE: ECON 25100: Microeconomics

QUESTION DESCRIPTION:

Quiz 4

1. When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that students who pay full tuition:

A. Have elastic demand and students who use financial aid have inelastic demand
B. Have inelastic demand and students who use financial aid have elastic demand
C. View a college education as an inferior good and students who use financial aid view it as a normal good
D. View a college education as a normal good and students who use financial aid view it as an inferior good

2. Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an:

A. Inelastic supply of movies in the evening
B. Elastic demand to see movies in the evening
C. Elastic demand to see movies in the afternoon
D. Inelastic demand to see movies in the afternoon

3. Airlines charge business travelers more than leisure travelers because there is a more:

A. Elastic supply of business travel
B. Inelastic supply of business travel
C. Elastic demand for business travel
D. Inelastic demand for business travel

4. For which product is the income elasticity of demand most likely to be negative?

A. Computer software
B. Used clothing

5. Most goods can be classified as normal goods rather than inferior goods. The definition of a normal good suggests that:

A. The income elasticity of demand for the good is negative
B. The price elasticity of demand for the good is negative
C. The income elasticity for the good is greater than 0
D. The cross elasticity of demand for the good is positive

6. The cross elasticity of demand for product X with respect to the price of product Y is -1.2. It can be inferred that X and Y are:

A. Substitute products
B. Complementary products
C. Luxury products
D. Unrelated products

7. If a 10 percent increase in the price of one good results in no change in the quantity demanded of another good, then it can be concluded that the two goods are:

A. Complementary goods
B. Substitute goods
C. Independent goods
D. Normal goods

8. The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case:

A. A 10 percent increase in price will result in a 10 percent increase in total revenues
B. A 10 percent increase in price will result in a 10 percent decrease in the quantity demanded
C. A 10 percent increase in price will result in a 10 percent decrease in total revenues
D. A 10 percent increase in price will result in a 10 percent increase in quantity demanded

9. If demand for farm crops is inelastic, a good harvest will cause farm revenues to:

A. Increase because of the increase in the quantity that farmers can sell
B. Increase because of a downward movement along the supply curve, encouraging an increase in demand
C. Decrease because of a percentage fall in price greater than the percentage increase in quantity sold
D. Remain unchanged, because the increase in quantity that can be sold will be matched by an equal decrease in price

10. You are the newly appointed sales manager of the Rock Record Company and have been charged with the task of increasing revenues. Your economics consultants have informed you that at present price and output levels, price elasticity of demand for your product is less than one. You should:

A. Decrease prices
B. Increase prices
C. Hold prices constant and increase supply
D. Cut advertising expenditures to save money

11. A state government wants to increase the taxes on cigarettes to increase tax revenue. This tax would only be effective in raising new tax revenues if the price elasticity of demand is:

A. Unity
B. Elastic
C. Inelastic
D. Perfectly elastic

12. You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10% through a price-change, what should you do to price?

A. Increase price by 12.5%
B. Reduce price by 12.5%
C. Increase price by 8%
D. Reduce price by 8%

13. A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. A price increase for each good would most likely cause total revenues from good A to:

A. Increase and total revenues from good B to decrease
B. Increase and total revenues from good B to increase
C. Decrease and total revenues from good B to increase
D. Decrease and total revenues from good B to decrease

14. Answer the question based on the following data.

Refer to the above data. Over which price range is the demand inelastic?

A. \$20-\$18
B. \$18-\$16
C. \$12-\$10
D. \$10-\$8

15. Answer the question based on the following data.

Refer to the above data. Over which price range is the demand elastic?

A. \$4-\$6
B. \$6-\$8
C. \$10-\$12
D. \$12-\$14

16. Answer the question based on the following data.

Refer to the above data. Over which price range is the demand unit-elastic?

A. \$18-\$16
B. \$16-\$14
C. \$14-\$12
D. \$12-\$10

17. Answer the question based on the following data.

Refer to the above data. What is the price elasticity of demand over the range of \$8 to \$10?

A. 0.11
B. 0.47
C. 1.93
D. 1.43

18. A straight-line downward-sloping demand curve has a price elasticity of demand which:

A. Decreases as price decreases
B. Increases as price decreases
C. Is zero at all prices
D. Is unitary at all prices

19. Refer to the above graph. Which of the following statements is correct?

A. Demand is perfectly elastic
B. Demand is perfectly inelastic
C. Supply is perfectly elastic
D. Supply is perfectly inelastic

20. When the price of candy bars decreased from \$.55 to \$.45 the quantity demanded changed from 19,000 per day to 21,000 per day. In this price range, the price-elasticity coefficient (based on the midpoint formula) for candy bars is:

A. 1
B. 2
C. 0.2
D. 0.5

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