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Quiz 3 in Principles of Microeconomics (Econ 2) from Drake University, Summer 2005 - Prof., Quizzes of Microeconomics

Drake UniversityMicroeconomics
Prof. William M. Boal

A quiz in principles of microeconomics (econ 2) from drake university, summer 2005. The quiz covers topics related to elasticities, demand and supply, and their relationships with price and income. It includes multiple-choice questions and problems that require calculations of price elasticity of demand, income elasticity of demand, and cross-price elasticity of demand.

Typology: Quizzes

Pre 2010

Uploaded on 07/30/2009

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Principles of Microeconomics (Econ 2) Signature:
Drake University, Summer 2005
William M. Boal Printed name:
QUIZ #3
“Elasticities”
INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted, but graphing calculators or
calculators with alphabetical keyboards are NOT permitted. Numerical answers, if rounded, must be correct to at least 3
significant digits. Point values for each question are noted in brackets. Maximum total points are 100.
I. Multiple choice: Circle the one best answer to each question. [3 pts each: 45 pts total]
(1) Which is a pure number, having no units of measure?
a. price.
b. quantity.
c. slope.
d. elasticity.
(2) Which demand curve below is more elastic?
a. Demand curve A.
b. Demand curve B.
c. Both have the same elasticity because they pass
through the same point.
d. Cannot be determined from the information given.
(3) If no good substitutes are available for a particular
product, that product’s demand will be
a. more elastic.
b. less elastic.
c. perfectly elastic.
d. Substitution possibilities do not affect elasticity.
(4) Which good is likely to have the most elastic
demand?
a. All juice.
b. All apple juice.
c. Mott's brand apple juice.
d. Demand for all three must have the same elasticity.
(5) Elastic demand means that the price elasticity of
demand is, in absolute value,
a. exactly equal to zero.
b. greater than zero but less than one.
c. exactly equal to one.
d. greater than one.
(6) The demand curve in the graph below is
a. perfectly elastic.
b. perfectly inelastic.
c. unitary elastic.
d. Cannot be determined from information given.
(7) A demand curve where the elasticity is the same at
every point
a. is a straight line.
b. is curved.
c. slopes upward.
d. does not exist.
(8) Suppose that when the price of ice cream drops by
10%, every consumer buys 15% more ice cream. Now
California has about 10 times more people than Iowa.
Therefore the price elasticity of demand for ice cream in
California is
a. greater than the price elasticity of demand in Iowa.
b. less than the price elasticity of demand in Iowa.
c. equal to the price elasticity of demand in Iowa.
d. cannot be determined from the information given.
Demand
curve A
Demand curve B
Price
Quantity
Price
Quantity
Demand
pf3
pf4

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Principles of Microeconomics (Econ 2) Signature: Drake University, Summer 2005 William M. Boal Printed name:

QUIZ

“Elasticities”

INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted, but graphing calculators or calculators with alphabetical keyboards are NOT permitted. Numerical answers, if rounded, must be correct to at least 3 significant digits. Point values for each question are noted in brackets. Maximum total points are 100. I. Multiple choice: Circle the one best answer to each question. [3 pts each: 45 pts total] (1) Which is a pure number, having no units of measure? a. price. b. quantity. c. slope. d. elasticity. (2) Which demand curve below is more elastic? a. Demand curve A. b. Demand curve B. c. Both have the same elasticity because they pass through the same point. d. Cannot be determined from the information given. (3) If no good substitutes are available for a particular product, that product’s demand will be a. more elastic. b. less elastic. c. perfectly elastic. d. Substitution possibilities do not affect elasticity. (4) Which good is likely to have the most elastic demand? a. All juice. b. All apple juice. c. Mott's brand apple juice. d. Demand for all three must have the same elasticity. (5) Elastic demand means that the price elasticity of demand is, in absolute value, a. exactly equal to zero. b. greater than zero but less than one. c. exactly equal to one. d. greater than one. (6) The demand curve in the graph below is a. perfectly elastic. b. perfectly inelastic. c. unitary elastic. d. Cannot be determined from information given. (7) A demand curve where the elasticity is the same at every point a. is a straight line. b. is curved. c. slopes upward. d. does not exist. (8) Suppose that when the price of ice cream drops by 10%, every consumer buys 15% more ice cream. Now California has about 10 times more people than Iowa. Therefore the price elasticity of demand for ice cream in California is a. greater than the price elasticity of demand in Iowa. b. less than the price elasticity of demand in Iowa. c. equal to the price elasticity of demand in Iowa. d. cannot be determined from the information given. Demand curve A Demand curve B Price Quantity Price Quantity Demand

Drake University, Summer 2005 Page 2 of 4 (9) Suppose the price elasticity of demand for electricity is –0.6. If the price of electricity is increased, the electricity utility’s revenue will a. decrease. b. remain constant. c. increase. d. fluctuate randomly. (10) Computer printers and ink cartridges are complements. Therefore, the cross-price elasticity of demand for ink cartridges, with respect to the price of printers, is surely a. positive. b. zero. c. negative. d. cannot be determined from information given. (11) Suppose the income elasticity of demand for professional sports tickets is about 2.4. If a consumer's income increases, the share of the consumer's income devoted to spending on professional sports tickets will a. decrease. b. remain constant. c. increase. d. fluctuate randomly. (12) Which is likely to have more elastic supply, paintings by Pablo Picasso or paint brushes? a. Paintings by Picasso. b. Paint brushes. c. Both have the same elasticity of supply because both have to do with art. d. Cannot be determined from the information given. (13) If producers have less time to anticipate and adjust to a price change, their supply will be a. more elastic. b. less elastic. c. downward-sloping. d. Time for adjustment does not affect elasticity. (14) Which supply curve below is more elastic? a. Supply curve A. b. Supply curve B. c. Both have the same elasticity because they pass through the same point. d. Cannot be determined from the information given. (15) The supply curve in the graph below is a. perfectly elastic. b. perfectly inelastic. c. unitary elastic. d. Cannot be determined from information given. II. Problems: Insert your answer to each question below in the box provided. Feel free to use the margins for scratch workonly the answers in the boxes will be graded. Work carefullypartial credit is not normally given for questions in this section. Supply curve A Supply curve B Price Quantity Price Quantity Supply

Drake University, Summer 2005 Page 4 of 4 (6) [12 pts] Suppose the income elasticity of demand for broadband internet service is 1.8. Now suppose income rises by

a. Will the amount of broadband internet service provided increase or decrease? b. ... by how much?

c. Will spending by consumers on broadband internet service increase or decrease? (Assume the price of broadband internet service does not change.) d. ... by about how much?

e. Will spending on broadband internet service, as a fraction of a consumer's total income, increase or decrease? (Assume the price of broadband internet service does not change.) f. ... by about how much?

III. Critical thinking: Write a one-paragraph essay answering one question blow (your choice). Full credit requires correct economic reasoning, legible writing, good grammar including complete sentences, and accurate spelling. [5 pts] (1) Consider the following statement. "If a company wants to increase its revenue, all it must do is raise the price of its product. Raising price might be bad public relations, but it is guaranteed to increase revenue." Do you agree or disagree? (2) Consider the following statement. "Everyone needs toothpaste. Even if the price were $10 per tube, people would still brush their teeth. So the demand for toothpaste is perfectly inelastic." Do you agree or disagree? Why? Which question are you answering, (1) or (2)? _________. Please write your answer below. [end of quiz]