The price elasticity of demand measures the:

The price elasticity of demand measures the:
a. responsiveness of a good’s price to a change in quantity demanded
b. adaptability of suppliers when a change in demand alters the price of a good
c. responsiveness of quantity demanded to a change in a good’s price
d. adaptability of buyers when there is a change in demand
e. responsiveness of quantity supplied to a change in quantity demanded of the entire demand curve

2. If the demand curve is a vertical line:
a. demand is perfectly elastic
b. quantity demanded is independent of price
c. demand is unitarily elastic
d. price is determined solely by demand

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3. If demand is elastic, then:
a. the percentage change in quantity demanded is larger than the percentage change in price
b. supply is inelastic
c. prices can neither rise nor fall
d. the percentage change in quantity demanded is smaller than the percentage change in price
e. supply is elastic

4. If the demand curve is a horizontal line:
a. demand is perfectly elastic
b. demand is perfectly inelastic
c. demand is unitarily elastic
d. demand is relatively inelastic

5. When demand is price elastic, a decrease in price results in a(n):
a. decrease in total revenue on the good
b. unfavorable shift in tastes and preferences
c. increase in supply of the good
d. increase in total revenue on the good

6. At the point where demand is unitarily elastic:
a. increases in price will decrease total revenue
b. increases in price will increase total revenue
c. increases in income will decrease quantity demanded
d. increases in price will increase quantity demanded
e. changes in price will not change the total revenue

7. For which of the following types of goods would demand be most elastic?
a. necessities
b. goods with many substitutes
c. goods that require only a small portion of the buyer’s budget
d. goods with vertical supply curves

8. For which of the following is demand likely to be the most inelastic?
a. a good for which there are no close substitutes
b. goods which constitute a large portion of a consumer’s budget
c. a good that is no longer being produced
d. a good for which close substitutes are easily obtained Use the following information for questions 9 through 13.

Period 1 Period 2
Good 1
Price $15 $20
Quantity 20,000 18,000
Good 2
Price $25 $20
Quantity 12,000 18,000

9. The price elasticity (Ed) for Good 1 is:
a. -.368
b. -2/3
c. -3/2
d. -2.714
e. -3

10. The price elasticity (Ed) for Good 2 is:
a. -.435
b. -.556
c. -1
d. -1.545
e. -1.8

11. Which of the goods have an inelastic demand?
a. Both goods have inelastic demand
b. Good 1
c. Good 2
d. Neither good has an inelastic demand

12. Assume that the price of Good 1 is decreased 5%. Quantity demanded will:
a. rise by 1.84%.
b. fall by 1.84%.
c. rise by 13.57%.
d. fall by 13.57%.

13. Assume that the price of Good 2 is increased 5%. Quantity demanded will:
a. rise by 2.78%.
b. fall by 2.78%.
c. rise by 9%.
d. fall by 9%.

14. Assume that a good’s price elasticity is -1.5 and that you observe that quantity decreases by 8%. What was the %?P?
a. -12%
b. -5 1/3%
c. 5 1/3%
d. 12%
15. Assume that 3 million units are currently being sold at a price of $10. The good has a price elasticity of -.6. If the government places a $1 per unit tax on the good, how much will be collected in taxes?
a. $1.8 million
b. $2.4 million
c. $2.5 million
d. $2.82 million
e. $3 million

16. Assume that at a $20 price, 750,000 units of a good are sold. The good has a price elasticity of -1.2. What price would need to be charged so that 817,500 units are sold?
a. $16.67
b. $17.33
c. $18.50
d. $21.50
e. $24.00

Use the following information for questions 17 through 21.

Period 1 Period 2
Income $15,000 $16,500
Good 1 Quantity 1,800 2,000
Good 2 Quantity 800 700

17. The income elasticity (EY) for Good 1 is:
a. -1.105
b. -.905
c. .905
d. 1.105

18. The income elasticity (EY) for Good 2 is:
a. -1.4
b. -.714
c. .714
d. 1.4

19. Assume that income increases by 10%. Quantity demanded for Good 1will:
a. rise by 9.05%.
b. fall by 9.05%.
c. rise by 11.05%.
d. fall by 11.05%.

20. Assume that income increases by 10%. Quantity demanded for Good 2 will:
a. rise by 7.14%.
b. fall by 7.14%.
c. rise by 14%.
d. fall by 14%.

21. Which of the goods are normal goods?
a. Both goods are normal goods
b. Good 1
c. Good 2
d. Neither good is a normal good
22. 400,000 units of a good with an income elasticity of 1.5 are currently being sold. If consumer income increases by 4%, how many units of the good will be sold?
a. 376,000
b. 384,000
c. 416,000
d. 424,000
e. 600,000

23. Assume that when the price of one increases from $10 to $12, the quantity of a second good rises from 20,000 units to 22,000 units. The cross price elasticity of these goods is ___ and the goods are ____.
a. -1.908; complements
b. -.524; substitutes
c. .524; complements
d. .524; substitutes
e. 1.908; substitutes

24. Assume that when the price of one increases from $10 to $12, the quantity of a second good falls from 10,000 units to 9,500 units. The cross price elasticity of these goods is ___ and the goods are ____.
a. -3.546; substitutes
b. -.282;compliments
c. .282; substitutes
d. 3.546; substitutes
e. 3.546; compliments

25. Bacon and eggs have a cross price elasticity of -0.8. 10,000 pounds of bacon are currently being sold. If egg prices drop by 5%, how many pounds of bacon will be sold?
a. 8,000
b. 9,500
c. 10,400
d. 10,500
e. 10,800