Download Quiz 6

ECO2100
Quiz #6 (10 points)
NAME:__________________________________
True/False: (1 point each)
_____1) Susan loves ice cream, but cannot stand yogurt. In contrast, Carol cannot tell the difference between
ice cream and yogurt. Therefore, Susan’s demand for ice cream is more elastic than Carol’s demand for ice
cream.
_____2) For the elasticity of demand, if we increase the amount of response time, elasticity increases.
_____3) Suppose cell phones have an income elasticity of demand (Yd) equal to 3.25. Based on this value cell
phones must be necessities.
_____4) Heroin dealers are able to charge extremely high prices for their product because the demand for
heroin is highly elastic.
_____5) Peanut butter and Jelly are complements in consumption, so their cross price elasticity of supply should
be positive.
_____6) If the cross price elasticity of demand is 1.8 then those two goods are strong substitutes in
consumption.
Multiple Choice: (1 point each)
_____7) When Jessie’s annual income is $10,000 she buys 300 gallons of gasoline a year. When her annual
income rose to $20,000 a year she bought 400 gallons of gasoline a year. What is Jessie’s income elasticity of
demand for gasoline and is the good an inferior good, necessity good, or luxury good?
a) YD = -7/3, Inferior
b) YD = 7/3, Luxury
c) YD = 3/7, Necessity
d) YD = 7/3, Necessity
e) YD = 3/7, Luxury
_____8) As the manager of a hotel, you want to increase the number of occupancies by 12%. It has been
determined that the price elasticity of demand for rooms in your hotel is 2. This information implies:
a) the demand for rooms in your hotel is inelastic.
b) If you lower your rates by 6% then you will increase the number of occupancies by 12%.
c) If you were able to raise your rates your total number of occupants would rise.
d) There must be very few substitutes for your hotel services.
_____9) Based on our discussion of the determinants of elasticity of demand, which of the following goods
would you expect to have the most inelastic demand curve?
a) Junk food
b) Chocolate candy
c) Candy bars
d) Snickers candy bars
_____10) The price of cat food has just increased from $5.00 to $10.00. The quantity demanded of cat litter
decreased from 100 tons to 60. The quantity supplied of cat food increased from 100 to 500. What is the cross
price elasticity of demand between cat food and cat litter?
a) -3/4 or -0.75, meaning the two goods are complements in consumption.
b) 2, meaning the two goods are substitutes in consumption.
c) -4/3 or -1.33, meaning the two goods are complements in consumption.
d) 1/2 or 0.5, meaning the two goods are substitutes in consumption.