1.
Define Income Elasticity of Demand
a) YED measures the degree of responsiveness of quantity demanded for a good to a
change in consumer's income, ceteris paribus
b) YED measures the degree of responsiveness of demand for a good to a change in
consumer's income, ceteris paribus
c) YED measures the degree of responsiveness of consumer's income to a change in
demand for a good, ceteris paribus
d) YED measures the degree of responsiveness of consumer's income to a change in
quantity demanded for a good, ceteris paribus
2.
Consumers demand less of this type of goods when their income increases.
a) bungalore
b) Low grade rice
c) salt
d) furniture
3.
Consumers demand more of this type of good when their income rises.
a) Normal good
b) Elastic good
c) Substitution good
d) Inferior good
4.
If the income elasticity of market demand is negative, most consumers view the good as:
a) a luxury good
b) an inferior good.
c) having many imperfect substitutes.
d) a normal good.
5.
If the YED of a good is assessed to be 0.7, the good can be classified as a
a) salt
b) salted fish
c) jewelry
d) books
6.
Which one is the correct formula for Income Elasticity of demand?
a) Percentage change in supplied for a good / Percentage change in income
b) Percentage change in quantity demand for a good / Percentage change in its price
c) Percentage change in quantity demand for a good / Percentage change in income
d) Percentage change in income / Percentage change in quantity demand for a good
7.
8.
9.
A Lamborghini is what type of a good
a) Normal Goods
b) Inferior Goods
c) Luxury Goods
d) Compulsory Goods
YED = 0 is referring to
a) Normal Goods
b) Necessity Goods
c) Luxury Goods
d) Inferior Goods
When YED value is positive and the value is 0.5
a) Necessity Goods
b) Luxury Good
c) Inferior Good
d) Normal Good
10. TRUE or FALSE: We can have everything that we want because we have unlimited
resources.
a) FALSE
b) TRUE
11. Which among the choices below creates an imbalance between resources and wants and
needs?
a) Considering if something is really a need or just a want
b) Consulting other people before doing something
c)Making responsible decisions
d) Doing things that you want to do
12. What could be a reason why we have "unlimited" wants and needs?
a) We want our lives to be miserable
b) We want to create problems for ourselves
c) We do not have the urge to own anything
d) We long to live comfortably
13. What does scarcity mean to humans?
a) that we must act irrationally
b) that we must not use our resources at all because we will run out them if we keep
using them
c) that we need to use up all our resources for our comfort
d) that we must use our resources efficiently so that needs and wants are satisfied
14. TRUE or FALSE: Mints are places where governments print worksheets for their employees.
a) FALSE
b) TRUE
15. What happens when a government prints too much money?
a) People will buy more things
b) People will be happy
c) The money has more value
d) The money will lose its value
16. Why is time considered to be scarce?
a) Humans do not live forever if they choose not to
b) Humans do not live forever
c) Humans can live forever because of cryonics
d) Humans live forever
17. What is the accepted rule with rare resources on Earth?
a) the rarer they are, the rarer they are of course
b) the rarer they are, the more valuable they become
c)the rarer they are, the rarer they can become
d) the rarer they are, the lesser value they acquire
18. Among the choices below, what can be solutions for food scarcity around the world? (select
all the possible answers)
a) responsible use of resources
b) efficient management of resources
c) equitable distribution of resources
d) people making the right decisions
19. When the quantity supplied is smaller than quantity demanded, you have a .
a) surplus
b) equilibrium
c) shortage
d) deficit
20. Point at which supply, and demand curve intersect each other
a) excess demand
b) disequilibrium
c) equilibrium
d) price ceiling
21. A situation in which the quantity supplied is greater than the quantity demanded is
a) a price floor
b) a surplus
c) a shortage
d) a price ceiling
22. What is characterized by changes in conditions where supply and demand are out of
balance?
a) Market Equilibrium
c) Market Price
b) Market Disequilibrium
23.
What happens to the market when the
chocolate bars are priced at $4 each?
a) shortage b) surplus
c) equilibrium
24.
What happens to the market when the chocolate bars are priced at $1 each?
a) equilibrium
b) surplus
c) shortage
25. Refer to the above graph. what is the equilibrium price and quantity?
a) $7, 20.
b) $3, 60.
c) $5, 40.
d) $7, 60.
27.
26. Refer to Graph 4-5. According to the graph, what occurs at a price of $7?
a) the market would be in equilibrium.
b) there would be a surplus of 20 units.
c) there would be a surplus of 40 units.
d) there would be a shortage of 40 units.
27. If the current price is $300, which of the following would be the best description for the
situation that exists in the market
a) There is a surplus of 18000 housesb) There is a shortage of 18 houses
c) There is a shortage of 18000 houses
d) There is a surplus of 18
28.
If the current price is $800, how will market equilibrium be restored?
a) Producers will lower the price
b) Consumers will bid up the price
c) The price will not change
If the current price is $300, how would market equilibrium be restored?
a) Producers will lower the price
b) The price will not change
c) Consumers will bid up the price
29.
If the current price is $800, how many houses will be sold?
a) 15000 houses
b) 24000 houses
c) 9000 houses
30. "holding all else equal, when the price of a good rises, suppliers increase their quantity
supplied for that good"
a) opportunity cost
b) law of supply
c) law of demand
d) law of equilibrium
31. The table summarizing quantity supplied at several prices is known as the
a) supply curve
b) supply schedule
c) equilibrium point
d) demand schedule
32. What is the effect on the equilibrium price and the quantity of chicken when there is a
technological advancement in the fisheries industry?
a) The price of chicken will increase, and the equilibrium quantity of chicken will
decrease.
b) The price of chicken will increase, and the equilibrium quantity of chicken will
increase.
c) The price of chicken will increase, and the equilibrium quantity of chicken will not
change.
d) The price of chicken will not change, and the quantity of chicken will increase.
33.
Which letter shows the equilibrium?
a) B
b) C
c) A
34. Suppose a study finds that as people's incomes rise, they tend to buy fewer subway tokens
because they are more likely to have a car. This would mean that subway tokens are
a) normal goods
b) inferior goods
c) price elastic goods
d) price taker goods
e) supply elastic goods
35. The more money people make, the more pairs of shoes they buy. We can conclude that
a) Shoes are a normal good.
b) Shoes are an inferior good.
c) Demand for shoes is highly price elastic.
D) Demand for shoes has an elasticity between 0 and 1.
E) All of the above.
Questions 36 and 37 refer to the following scenario: A 4% increase in the price of tomatoes
leads to a 1% reduction in the quantity of tomatoes demanded.
36.
The price elasticity of demand for tomatoes is:
a) 0.5
b) 0.6
c) 0.25
d)1.25
e) 4.0
37.
Which of the following statements about tomato market is false?
a) Demand for tomatoes is price inelastic.
B) A price increase will lead to a revenue increase.
c) Demand for tomatoes is unit elastic.
D) Price elasticity of demand equals percent change in quantity demanded, divided by percent
change in price.
e) All of the above are true.
8.
Which of the following statements is true?
a) Elasticity is identical to the slope of the demand curve.
b.A single, straight-line demand curve can be elastic in one region and inelastic in another.
c.Perfectly inelastic demand can be represented by a horizontal line.
d.When demand is unit elastic, revenue is strongly affected by price changes.
e.You can always determine the relative elasticity of demand for two products by comparing the
slope of their demand curves.
9.Suppose a 50% increase in the price of a drug results in no change in the quantity demanded.
What is the price elasticity of the drug?
a.0
b.0.05
c.0.5
d.1
e.Infinite
10.Suppose the price elasticity of demand for a good is 0.6. When the price of the good
decreases by 10%, what would we expect to happen to the quantity demanded?
a.It will increase by 60%
b.It will increase by 6%
c.It will increase by 0.6%
d.It will decrease by 0.6%
e.It will decrease by 6%
11.Which one of the following goods is most likely to have a perfectly elastic demand?
a.cigarettes
b.shoes
c.rice, in a developing country
d.a particular brand of butter
e.airline travel
12.Which is the following income elasticities could correspond to a normal good that is
income inelastic?
a.0.5
b.1.5
c.– 1.5
d.2.0
e.-0.5
13.Every week you buy rice, wheat, and oatmeal. Suddenly the price of rice rises. You decide to
cut down on your rice purchases and get more wheat and oatmeal instead.
This is an illustration of …
a.an income effect
b.a substitution effect
c.a normal good effect
d.a Giffen good
e.a price inelastic good
14.A population subsists largely on potatoes, plus small amounts of dairy products and
vegetables. The price of potatoes rises, driving many poor families deeper into poverty. As a
result, these families are forced to eliminate dairy products and vegetables from their daily diet
and start eating even more potatoes than they did before. In this example potatoes are …
a.normal goods
b.inferior goods
c.giffen goods
d.both a and c are correct.
e.both b and c are correct.
15.You get a notice in the middle of the semester stating that your monthly dorm fee is being
doubled, effective immediately. You don't want to pay the higher fee, but it's not practical for
you to move out of the dorm mid-semester. You decide to pay the extra charge now, and look
for new housing option after exams are over. Which of the following statements best describes
your situation?
a.The dorm room is a Giffen good.
b.The dorm room is an inferior good.
c.Your short run demand for dorm housing is relatively inelastic.
d.Your long run demand for dorm housing is less elastic than your short run demand.
e.None of the above.
16.Which of the following goods is most likely to have high price elasticity of demand?
a.A staple food.
b.A good that forms a very small part of a person’s total budget.
c.A good for which there are many close substitutes.
d.A vital medicine.
e.None of the above.
17.Jake sells hot dogs at an outdoor stand. There are several other hot dog stands in the vicinity.
There is a going price in the market for hot dogs. Which of the following
statements is true about the demand for Jake’s hot dogs?
a.Demand for Jake’s hot dogs is perfectly inelastic.
b.Demand for Jake’s hot dogs is perfectly elastic.
c.Demand for Jake’s hot dogs can be represented as a vertical line.
d.Demand for Jake’s hot dogs can be represented as a downward sloping line.
e.None of the above.
18. Suppose that the price elasticity of supply for toothpaste is 0.2. If the price of toothpaste
increases by 30%, what would we expect to happen to the quantity of toothpaste supplied?
a.increase by 3%
b.decrease by 5%
c.increase by 60%
d.decrease by 15%
e.increase by 6%
19.Suppose a grocery store normally sells 100 cartons of milk per day and the price elasticity of
demand for milk is 1.7. If the store lowers the price of milk by 10%, about how many cartons of
milk will it then sell per week?
a.117
b.83
c.85
d.100
e.101.7
20.Which of the following is most likely to be an inferior good?
a.eyeglasses
b.airplane tickets
c.caviar
d.opera tickets
e.discount bus tickets
A local council raises the price of car parking from £3 per day to £5 per day and finds that usage
of car parks contracts from 1,200 cars a day to 900 cars per day.
Calculate the price elasticity of demand for this price change
Name the three main reasons why demand for a good or service might be inelastic.
1. You run the only lemonade stand in Central Park. If people don't buy lemonade from you,
their only other option is to buy orange juice from a nearby vendor. One day, you decide to
raise the price of your lemonade from $1 per glass to $1.25 per glass. As a result, half of
your usual customers decide to get orange juice instead of lemonade that day. What does
this experience tell you about the demand for lemonade in Central Park?
2. Draw a diagram of a perfectly inelastic demand curve. Suggest an example of
a good for which demand might be perfectly elastic.
3. 5.Suppose the demand for oranges is more price elastic in the demand for chocolate. On the
graph below, indicate which line represents the demand for oranges, and which represents
the demand for chocolate.
6.Which of the following demand curves is more elastic?