If an increase in the price of pineapple juice of 10% results in an increase in the demand for grape juice of 5%, the cross-price elasticity of demand between pineapple juice and grape juice is:
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0.5
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Which of the following scenarios is likely to make the supply of Maine lobsters more elastic?
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Time passes to allow lobstermen to adjust to market conditions.
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For which of the following products is demand likely to be the most inelastic?
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Table salt
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If a state decided to place a tax on home heating oil, over time:
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demand would become more elastic and tax revenue would decline.
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Generally, we calculate elasticity as the:
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percentage change in quantity demanded/supplied divided by the percentage change in price.
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A 10% decrease in the price of gas grills leads to a 15% increase in the demand for flank steaks. The cross-price elasticity of demand between gas grills and flank steaks is:
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-1.5
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Generic macaroni and cheese is an inferior good. Demand for generic macaroni and cheese is likely to increase when:
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income decreases.
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The table below presents four supply curves for the same product at four different time horizons.
Supply in Four Time Horizons
Price (dollars) Quantity Supplied in Horizon A Quantity Supplied in Horizon B Quantity Supplied in Horizon C Quantity Supplied in Horizon D
$100 100 25 46 62.5
80 75 25 39 50.0
60 50 25 32 37.5
40 25 25 25 25.0
20 0 25 18 12.5
0 0 25 11 0.0
Which of the four time horizons is most likely to represent the firm's long-run supply curve?
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Horizon A
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Elasticity differs from the slope as a measure of responsiveness to changes in prices because:
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percentage changes do not depend on the units of measurement, whereas the slope does.
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For which of the following products is demand likely to be the most elastic?
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Converse All Star sneakers
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An economist recently estimated that for every 1% increase in the price of french fries at fast-food restaurants, 0.44% fewer french fries are sold. This indicates that the demand for fast-food french fries is:
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inelastic
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To economists, the main differences between "the short run" and "the long run" are that
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in the long run all resources are variable, while in the short run at least one resource is fixed.
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For a linear demand curve
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demand is elastic at high prices.
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Which of the following factors will make the demand for a product relatively elastic?
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The time interval considered is long.
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If a 10% 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
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unrelated.
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The law of supply suggests that the price elasticity of supply is
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positive.
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The price elasticity of supply for a product will be 2 if a
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1% decrease in price causes a 2% decrease in quantity supplied.
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The cross-price elasticity of demand measures how sensitive purchases of a specific product are to changes in
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the price of some other product.
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Use the following graph to answer the question below.
If the price is P3, then the total revenue is represented by area
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B + C + D + E + F + G.
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Demand is said to be inelastic when
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a reduction in price results in a decrease in total revenue.
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The formula for the cross-price elasticity of demand is percentage change in
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quantity demanded of B/percentage change in price of A.
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Answer the next question based on information in the following table.
Product Percentage Change in Income Percentage Change in Quantity Demanded
W −1 −1
X +6 +3
Y −1 +1
Z +4 +8
Which product would be an inferior good?
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product Y
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If the absolute value of the price elasticity of demand for a good is .75, the demand for that good is described as
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inelastic.
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The elasticity of demand for a product is likely to be greater
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the greater the amount of time over which buyers adjust to a price change.
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The price elasticity of supply measures how
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responsive the quantity supplied of X is to changes in the price of X.
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The price elasticity of demand increases with the length of the period considered because
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consumers will be better able to find substitutes.
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When interpreting the Ed value as either elastic or inelastic, we look at the
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absolute value of the Ed coefficient (dropping the negative sign).
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The basic formula for the price elasticity of demand is
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percentage change in quantity demanded/percentage change in price.
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Use the figure below to answer the following question.
Which graph shows the immediate period for supply?
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graph 3
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The price elasticity of supply measures how
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responsive the quantity supplied of X is to changes in the price of X.
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The total revenue received by sellers of a good is computed by
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multiplying the price times the quantity sold.
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The demand schedules for such products as eggs, bread, and electricity tend to be
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relatively inelastic.
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Economists distinguish among the immediate period, the short run, and the long run by noting that
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supply is most elastic in the long run and perfectly inelastic in the immediate period.
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Total revenue decreases as the price of a good increases, if the demand for the good is
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elastic.
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The definition of a normal good suggests that the
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income elasticity of demand for the good is greater than 0.
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Use the figure below to answer the following question.
The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the
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long run, short run, and immediate period respectively.
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For which product is the income elasticity of demand most likely to be negative?
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used clothing
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Use the figure below to answer the following question.
For which graph is the supply perfectly inelastic?
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graph 3
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Tom likes to collect Batman and Superman comic books. The table below presents his total and marginal utilities for both types of comic books.
Instructions: Enter your answers as a whole number.
Batman Comics, Superman Comics, and Tom's Utility
Batman Comic Books Superman Comic Books
Quantity Total Utility Marginal Utility Quantity Total Utility Marginal Utility
0 0 — 0 0 —
1 40 40 1 58 58
2 68 28 2 92 34
3 88 20 3 106 14
4 94 6 4 110 4
5 94 0 5 112 2
6 84 -10 6 112 0
7 64 -20 7 104 -8
a. Assume the price of a Batman comic book is $1, and the price of a Superman comic book is $2. Fill in the values for the marginal utility per dollar for Batman and Superman comic books in the table below.
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Batman Comics, Superman Comics, and Tom's Marginal Utility per Dollar
Batman Comic Books Superman Comic Books
Quantity Marginal Utility per Dollar Quantity Marginal Utility per Dollar
0 — 0 —
1 40 1 29
2 28 2 17
3 20 3 7
4 6 4 2
5 0 5 1
6 -10 6 0
7 -20 7 -4
b. Suppose Tom has $5 to spend on Batman and Superman comic books (nothing else matters to Tom). If Tom wants to maximize his utility, how many of each should he buy?
3 Batman comic book(s) and 1 Superman comic book(s)
c. Now suppose Tom has $10 to spend on Batman and Superman comic books (nothing else matters to Tom). If Tom wants to maximize his utility, how many of each should he buy?
4 Batman comic book(s) and 3 Superman comic book(s)
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Hector would like to buy a new pair of soccer cleats. Hector prefers Adidas to Puma brand soccer cleats. But Hector chooses to buy the Puma brand cleats instead. Which of the following reasons for Hector's choice is consistent with rational consumer choice?
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The price of Puma brand soccer cleats was less than the price of Adidas brand soccer cleats.
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Which of the following is an assumption of the decision-making process followed by consumers to maximize utility?
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The consumer considers the prices of the products.
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The decision-making process followed by consumers to maximize utility assumes that
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consumers behave rationally, attempting to maximize their satisfaction.
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Which of the following statements is correct?
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Total utility is the sum of marginal utilities.
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Which of the following defines marginal utility?
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the additional satisfaction or happiness received from the consumption of an additional unit of a good or service
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Total utility is best defined as the
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total satisfaction received from consuming a good, service, or combination of goods and services.
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Which of the following is not an assumption of the decision-making process followed by consumers to maximize utility?
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The consumer does not consider the prices of the products.
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Marginal utility is equal to
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change in total utility divided by change in quantity consumed.
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In deciding what to buy to maximize utility, the consumer should choose the good with the
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highest marginal utility per dollar spent.
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The satisfaction or happiness one gets from consuming a good or service is called
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utility.
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The utility from a specific product is
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a measure of one's preference or taste for it.
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Cross-price elasticity of demand is
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negative for complementary goods.
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