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```Practice questions - Elasticities, Demand and Supply Applications
Practice questions - Elasticities, Demand and Supply Applications
1. The inverse elasticity pricing rule says that the optimal markup of price over marginal cost
expressed as a percentage of price
a) is equal to 1⁄2 the inverse of the price elasticity of demand.
b) is equal to the negative of the inverse of the price elasticity of demand.
c) is equal to the inverse of the price elasticity of demand.
d) is equal to - 1⁄2.
6. The ABC Computer Company spends a lot of money for advertising designed to convince you
that their personal computers are superior to all other personal computers. If the ABC
Company is successful, the demand for ABC personal computers
(a) and the demand for other firmsʹ personal computers will become less price elastic.
(b) will become more price elastic, but the demand for other firmsʹ personal computers will
become less price elastic.
(c) will become less price elastic, but the demand for other firmsʹ personal computers will
become more price elastic.
(d) and the demand for other firmsʹ personal computers will become more price elastic.
2. At Point C the price elasticity of demand is -1. Along line segment AB of the demand curve, the
demand is
7. The own price elasticity of demand for good X is closest to:
a)
b)
c)
d)
either elastic or inelastic, depending on whether price increases or decreases.
inelastic.
unit elastic.
elastic.
3. When the price of oysters decreases 25%, quantity demanded increases 10%. The price
elasticity of demand for oysters is ________ and total revenue from oyster sales will ________.
(a) elastic; increase
(b) inelastic; decrease
(c) inelastic; increase
(d) elastic; decrease
4. The price elasticity of demand for kale in Texas is -2, and the price elasticity of demand for kale
in California is -0.5. In other words, demand in Texas is ________, and demand in California is
________.
(a) elastic; inelastic
(b) elastic; unit elastic
(c) inelastic; elastic
(d) inelastic; unit inelastic
5. If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of
aluminum foil will increase the quantity demanded of aluminum foil by
(a) 1.66%, and aluminum foil sellers' total revenue will decrease as a result.
(b) 1.66%, and aluminum foil sellers' total revenue will increase as a result.
(c) 3.48%, and aluminum foil sellers' total revenue will decrease as a result.
(d) 3.48%, and aluminum foil sellers' total revenue will increase as a result.
(a)
(b)
(c)
(d)
-1.3
-1.03
1.3
-2.6
8. If consumer purchases of a good are highly sensitive to the price of the good, this is illustrated
by a
(a) supply curve that is relatively steep (more vertical).
(b) demand curve that is relatively steep (more vertical).
(c) demand curve that is relatively flat (more horizontal).
(d) supply curve that is relatively flat (more horizontal).
9. At a price of \$12, quantity demanded is 80; and at a price of \$8, quantity demanded is 120.
Since total revenue is _______ by the price decrease, demand must be ______.
(a) unchanged; elastic
(b) unchanged; inelastic
(c) unchanged; unit elastic
(d) increased; elastic
10. At a price of \$12, quantity demanded is 80; and at a price of \$10, quantity demanded is 100.
The demand must be ______
(a) elastic.
(b) Inelastic.
(c) unit elastic.
(d) perfectly elastic.
Practice questions - Elasticities, Demand and Supply Applications
11. Sellers’ total revenue would increase if the price
(a)
(b)
(c)
(d)
decreased from \$12 to \$3
decreased from \$15 to \$12
increased from \$33 to \$36
increased from \$6 to \$9
12. The income elasticity of demand for low-quality beef is -2. Thus an 8% decrease in the quantity
of low-quality beef demanded
(a) is the result of an increase in income of 4%.
(b) is the result of an increase in income of 0.25%.
(c) is unrelated to any change in income.
(d) Is the result of a decrease in income of 4%.
```
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