Is bottled water elastic or inelastic

ECN 202, Spring 2015 Quiz 1

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded A) will decrease by 45 percent. B) will decrease by 5 percent. C) will increase by 45 percent. D) will increase by 5 percent.

1)

Refer to the information provided in Figure 5.1 below to answer the questions that follow.

Figure 5.1

2) Refer to Figure 5.1. The demand for tickets is A) perfectly income inelastic. B) unit price elastic. C) perfectly price elastic. D) perfectly price inelastic.

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3) If demand is inelastic, the absolute value of the price elasticity of demand is A) less than one. B) greater than one. C) one. D) greater than the absolute value of the slope of the demand curve.

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4) The price elasticity of demand for bottled water in Texas is -2, and the price elasticity of demand for bottled water in California is -0.5. In other words, demand in Texas is ________ and demand in California is ________. A) elastic; unit elastic B) inelastic; unit inelastic C) elastic; inelastic D) inelastic; elastic

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Figure 6-1

5) Refer to Figure 6-1. A perfectly elastic demand curve is shown in A) Panel A. B) Panel B. C) Panel C. D) Panel D.

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Refer to the information provided in Figure 5.3 below to answer the questions that follow.

Figure 5.3

6) Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger is increased from $6 to $8, the price elasticity of demand equals ________ and demand is ________ . A) -1.75; elastic B) -1.9; inelastic C) -0.57; inelastic D) -2.0; elastic

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7) A firm is currently producing in the inelastic portion of its demand curve. What course of action do you recommend for it assuming it wants to raise revenue? A) Reduce price, because if it reduces price and demand is inelastic, total revenue will increase.

B) Increase price, because if it increases price and demand is inelastic, total revenue will increase.

C) Continue selling at the same price, but increase the amount it produces. D) Continue producing at the current output level, because it maximizes its total revenue by producing in the inelastic portion of its demand curve.

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8) A firm is currently producing in the elastic portion of its demand curve. What course of action do you recommend for it assuming it wants to raise revenue? A) Continue producing at the current output level, because it maximizes its total revenue by producing in the elastic portion of its demand curve.

B) Continue selling at the same price, but increase the amount it produces. C) Increase price, because if it increases price and demand is elastic, total revenue will increase.

D) Reduce price, because if it reduces price and demand is elastic, total revenue will increase.

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9) When there are more substitutes for a product, the ________ for the product is ________. A) demand; more price elastic B) income elasticity; greater C) demand; less price elastic D) income elasticity; smaller

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10) If the cross-price elasticity of demand for computers and software is negative, this means the two goods are A) complements. B) inferior. C) substitutes. D) normal.

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