Economics Study Guide Test #2.docx - Economics Study Guide If Mr Smith thinks the last dollar spent on shirts yields less satisfaction than the last

Economics Study Guide Test #2.docx - Economics Study Guide...

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Economics Study Guide If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should-- Increase his spending’s on cola and decrease his spending on shirts. 1. If a Krispy Kreme doughnut shop near campus increases its prices by 5 percent, but revenues from its sales are unchanged, the price elasticity of demand for the services offered by the doughnut shop must be -- Of unitary elasticity 2. When the price of Mikey sneakers goes from $120 to $80, the quantity demanded increases from 20 to 40 million. Over this price range, the absolute value of the price elasticity of demand is - 1.67 3. A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent. The increase causes households to -- Spend more on sugar 5. Suppose Pennsylvania adds a $2.00 per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The price elasticity of demand for cigarettes is equal to -0.67 7. If Sarah’s income rises by 20 percent, and, as a result, she purchases 40 percent more designer clothing, her income elasticity for designer clothing is 2.0 8. If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent A. Demand is elastic 10. If the price of gasoline goes up, and Dan now buys fewer candy bars because he has to spend more on gas, this would best be explained by. The income effect 12. I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today. This statement most clearly reflects
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