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1 Midterm 2- Answer Key Part 1 (Question 1- Question 25, 3 points each, totally 75points) 1) The price elasticity of demand shows A) the relationship between market price and household income. B) the proportionate amount by which the quantity demanded changes in response to a proportionate change in price. C) the quantity demanded at a given price. D) the change in the demand for one product in response to a change in the price of another product. 2) If the price elasticity of demand for good A is 1 (absolute value), then a 1% increase in A) consumer income will result in a 1% decrease in the demand for good A. B) consumer income will result in a 1% increase in the demand for good A. C) the market price of good A will result in a 1% increase in the quantity demanded of good A . D) the market price of good A will result in a 1% decrease in the quantity demanded of good A . 3) According to the above table, what is the absolute price elasticity of demand if price falls from \$8.00 to \$7.50? A) 4.00 B) 2.82 C) 1.80 D) 1.21

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2 4) Refer to the above table. For which prices is demand elastic? A) In a range of prices below \$6.50 B) In a range of prices above \$6.50 C) In a range of prices between \$5 and \$10 D) In a range of prices above \$6.00 5) Over the inelastic range of a demand curve, there is A) a positive relationship between a given percentage change in price and a change in total revenues. B) a negative relationship between a given percentage change in price and a change in total revenues. C) an increase in total revenues regardless of an increase or decrease in price. D) no relationship between changes in price and changes in total revenues. 6) A university raises annual tuition by 10 percent. No other events have occurred, and the university's revenues have increased. It must be true that A) the associated change in quantity demanded was smaller than 10 percent. B) the associated change in quantity demanded was equal to 10 percent. C) the associated change in quantity demanded was greater than 10 percent. D) there was no associated change in quantity demanded.
3 7) Use the above figure. When the price increases from \$2 to \$10, total revenue A) increases from areas A + B to areas B + C and demand is inelastic. B) increases from areas B + C to areas A + B and demand is inelastic. C) increases from areas B + C to areas A + D and demand is elastic. D) increases from areas C + D to areas B + A and demand is elastic. 8) An elastic response in the quantity of a good demanded would be caused by A) the availability of many substitutes. B) a lack of substitutes. C) a lack of sensitivity to the good's price. D) the good representing a small portion of a person's budget. 9) Which of the following would most likely exhibit the highest price elasticity of

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