# ps5 - EC 101.05-06 Exercises for Chapter 5 FALL 2008 1...

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EC 101.05-06 Exercises for Chapter 5 FALL 2008 1. Which of the following statements about the price elasticity of demand is correct? a. The price elasticity of demand for a good measures the willingness of buyers of the good to move away from the good as its price increases. b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y . d. All of the above are correct. 2. Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because a. buyers tend to be much less sensitive to a change in price when given more time to react. b. buyers tend to be much more sensitive to a change in price when given more time to react. c. buyers will have substantially more income over a ten-year period. d. the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline. 3. When the price of bubble gum is \$0.50, the quantity demanded is 400 packs per day. When the price falls to \$0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic. 4. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded. 5. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.78. Which of the following events is consistent with a 4.68 percent decrease in the quantity of the good demanded?

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ps5 - EC 101.05-06 Exercises for Chapter 5 FALL 2008 1...

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