ALLIED ECN150 module 2 Check Your Understanding

Question Points
1. If a 20%
increase in the pricea of a good results in a 15% decrease in quantity demanded,
the price elasticity of demand is:
a. 0.75.
b. 1.25.
c. 1.33.
d. 1.60.
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2. The case
of perfectly elastic demand is illustrated by a demand curve that is:
a. vertical.
b. horizontal.
c. downward-sloping
but relatively steep.
d. downward-sloping
but relatively flat.
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3. Consider
the market for new DVDs. If DVD players became cheaper, buyers expected DVD
prices to fall next year, used DVDs became more expensive, and DVD production
technology improved, then we could safely conclude that the equilibrium price
of a new DVD would:
a. rise.
b. fall.
c. stay the same.
d. We couldn’t be
sure what it might do.
4. Assume
that a 4 percent decrease in income results in a 6 percent increase in the
quantity demanded of a good. The income elasticity of demand for the good is:
a. negative and
therefore the good is an inferior good.
b. negative and
therefore the good is a normal good.
c. positive and
therefore the good is an inferior good.
d. positive and
therefore the good is a normal good.
5. Suppose
that quantity demand falls by 30% as a result of a 5% increase in price. The
price elasticity of demand for this good is:
a. inelastic and
equal to 6.
b. elastic and equal
to 6.
c. inelastic and
equal to 0.17.
d. elastic and equal
to 0.17.
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6. Suppose
scientists provide evidence that chocolate pudding increases the bad
cholesterol levels of those who eat it. We would expect to see:
a. no change in the
demand for chocolate pudding.
b. a decrease in the
demand for chocolate pudding.
c. an increase in
the demand for chocolate pudding.
d. a decrease in the
supply of chocolate pudding.
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7. When a
shortage exists in a market, sellers:
a. raise price,
which increases quantity demanded and decreases quantity supplied, until the
shortage is eliminated.
b. raise price,
which decreases quantity demanded and increases quantity supplied, until the
shortage is eliminated.
c. lower price,
which increases quantity demanded and decreases quantity supplied, until the
shortage is eliminated.
d. lower price,
which decreases quantity demanded and increases quantity supplied, until the
shortage is eliminated.
8. Total
revenue will be at its largest value on a linear demand curve at:
a. the top of the
curve, where prices are highest.
b. the midpoint of
the curve.
c. the low end of
the curve, where quantity demanded is highest.
d. None of the
choices apply.
9. Currently
you purchase 6 packages of hot dogs a month. You will graduate from college in
December, and you will start a new job in January. You have no plans to
purchase hot dogs in January. For you, hot dogs are:
a. a substitute
good.
b. a normal good.
c. an inferior good.
d. a complementary
good.
10. Today’s
supply curve for gasoline could shift in response to:
a. a change in
today’s price of gasoline.
b. a change in the
expected future price of gasoline.
c. a change in the
number of buyers of gasoline.
d. All of the
choices apply.
11. When
quantity demanded increases at every possible price, we know that the demand
curve has:
a. shifted to the
left.
b. shifted to the
right.
c. not shifted;
rather, we have moved along the demand curve to a new point on the same curve.
d. not shifted;
rather, the demand curve has become steeper.
12. If the
cross-price elasticity of two goods is positive, then those two goods are:
a. substitutes.
b. complements.
c. normal goods.
d. inferior goods.
13. The shift
from S to S’ is called:

a. a decrease in
supply.
b. a decrease in
quantity supplied.
c. an increase in
supply.
d. an increase in
quantity supplied.
14. Pizza is a
normal good if:
a. the demand for
pizza rises when income rises.
b. the demand for
pizza rises when the price of pizza falls.
c. the demand curve
for pizza slopes downward.
d. the demand curve
for pizza shifts to the right when the price of burritos rises, assuming pizza
and burritos are substitutes.
15. At a price
of $35:

a. there would be a
shortage of 400 units.
b. there would be a
surplus of 200 units.
c. there would be a
surplus of 400 units.
d. there would be a
surplus of 600 units.
16. Which of
the following would be true as the price elasticity of supply approaches
infinity?
a. Very small
changes in price lead to very large changes in quantity supplied.
b. Very large
changes in price lead to very small changes in quantity supplied.
c. Very small
changes in price lead to no change in quantity supplied.
d. Very large
changes in price lead to no change in quantity supplied.
17. If the
demand for a product decreases, then we would expect:
a. equilibrium price
to increase and equilibrium quantity to decrease.
b. equilibrium price
to decrease and equilibrium quantity to increase.
c. equilibrium price
and equilibrium quantity to both increase.
d. equilibrium price
and equilibrium quantity to both decrease.
18. Which of
the following could be the price elasticity of demand for a good for which an
increase in price would decrease revenue?
a. 0
b. 0.5
c. 1
d. 1.5
19. In this
market, equilibrium price and quantity, respectively, are:

a. $15 and 400.
b. $20 and 600.
c. $25 and 500.
d. $25 and 800.
20.
At a price of $20, which of the following statements in not
correct?

a. The market is in
equilibrium.
b. Equilibrium price
is equal to equilibrium quantity.
c. There is no
pressure for price to change.
d. The quantity of
the good that is bought and sold is 600.