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MCQs and Problems for Quiz 3 - Principle of Microeconomics | ECON 002, Quizzes of Microeconomics

Drake UniversityMicroeconomics
Prof. William M. Boal

Material Type: Quiz; Professor: Boal; Class: PRINCIPLES OF MICROECONOMICS; Subject: Economics; University: Drake University; Term: Summer 2003;

Typology: Quizzes

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Principles of Microeconomics (Econ 002) Signature:
Drake University, Summer 2003
William M. Boal Printed name:
QUIZ #3 VERSION A
“Elasticities”
INSTRUCTIONS: This quiz is closed-book, closed-notes, but calculators are 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. [4 pts each: 36 pts total]
(1) Elasticities are
a. measured in dollars.
b. measured in tons, gallons, etc.—whatever the
appropriate quantity units.
c. pure numbers.
d. none of the above.
(2) 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.
(3) If buyers or consumers have more time to
anticipate and adjust to a price change, their demand
is
a. more elastic.
b. less elastic.
c. downward-sloping.
d. Time for adjustment does not affect elasticity.
(4) Which good is likely to have the least elastic
demand?
a. All bicycles.
b. All mountain bicycles.
c. Trek brand mountain bicycles.
d. Demand for all three must have the same
elasticity.
(5) Inelastic demand means that the price elasticity
of demand is, in absolute value,
a. greater than one.
b. equal to one.
c. less than one.
d. zero.
(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) Suppose the price elasticity of demand for
electricity is –1.5. If the price of electricity is
increased, the electricity utility’s revenue will
a. decrease.
b. remain constant.
c. increase.
d. fluctuate randomly.
(8) Along a straight-line demand curve, the price
elasticity of demand
a. is constant.
b. is changing.
c. cannot be calculated.
d. does not exist.
(9) Suppose the variable X increases by 2 percent
and the variable Y increases by 4 percent. Then the
product (XY) increases by about
a. 3 percent.
b. 6 percent.
c. 8 percent.
d. 24 percent.
P
Q
Demand
pf3

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Principles of Microeconomics (Econ 002) Signature: Drake University, Summer 2003 William M. Boal Printed name:

QUIZ #3 VERSION A

“Elasticities”

INSTRUCTIONS: This quiz is closed-book, closed-notes, but calculators are 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. [4 pts each: 36 pts total] (1) Elasticities are a. measured in dollars. b. measured in tons, gallons, etc.—whatever the appropriate quantity units. c. pure numbers. d. none of the above. (2) 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. (3) If buyers or consumers have more time to anticipate and adjust to a price change, their demand is a. more elastic. b. less elastic. c. downward-sloping. d. Time for adjustment does not affect elasticity. (4) Which good is likely to have the least elastic demand? a. All bicycles. b. All mountain bicycles. c. Trek brand mountain bicycles. d. Demand for all three must have the same elasticity. (5) Inelastic demand means that the price elasticity of demand is, in absolute value, a. greater than one. b. equal to one. c. less than one. d. zero. (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) Suppose the price elasticity of demand for electricity is –1.5. If the price of electricity is increased, the electricity utility’s revenue will a. decrease. b. remain constant. c. increase. d. fluctuate randomly. (8) Along a straight-line demand curve, the price elasticity of demand a. is constant. b. is changing. c. cannot be calculated. d. does not exist. (9) Suppose the variable X increases by 2 percent and the variable Y increases by 4 percent. Then the product (XY) increases by about a. 3 percent. b. 6 percent. c. 8 percent. d. 24 percent.

P

Q

Demand

Principles of Microeconomics (Econ 002) Drake University, Summer 2003 Quiz #3 Version A Page 2 of 3 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. (1) [12 pts] Suppose that when the price of beef is $0.90 per pound, 6 million pounds are sold per month; but when the price is $1.10 per pound, 4 million pounds are sold per month. a. Compute the price elasticity of demand using the so-called arc formula. b. Suppose beef were measured in kilograms rather than pounds. Would the elasticity increase, decrease, or remain the same? c. Suppose the price of beef were measured in cents rather than dollars. Would the elasticity increase, decrease, or remain the same?

(2) [12 pts] Use the information given below to determine whether each pair of goods (in italics ) consists of

substitutes or complements. Also compute the cross-price elasticity of demand. [Hint: The sign

matters!]

Substitutes or complements? Computed cross-price elasticity a. The price of laser printers falls by 10%, causing the quantity of inkjet printers purchased to decrease by 2%. b. The price of fax machines falls by 40%, causing the quantity of phone lines to increase by 10%.

(3) [12 pts] Use the information given below to determine whether the good (in italics ) is a normal good or

an inferior good. Also compute the income elasticity of demand. [Hint: The sign matters!]

Normal good or inferior good? Computed income elasticity a. A recession lowers consumers’ income by 5%, causing sales of second-hand clothing to increase by 2%. b. Consumers' income rises by 3%, causing the number of digital cameras sold to increase by 6%. (4) [12 pts] Suppose the government wants to increase the number of qualified applicants for civil-service positions by 10%. It is known that the elasticity of supply for civil-service jobs is 2.0. a. To increase the number of applicants by this much, must civil-service salaries increase or decrease? b. ... by about how much?

c. Will the total size of the government payroll (the amount budgeted to pay civil- service employees) increase or decrease? d. ... by approximately how much?