Practice_Ch6_ - Chapter 6 Practice Test Elasticity 1 Use...

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Chapter 6 Practice Test Elasticity 1. Use the following diagram to answer the next question. Refer to the diagram. Between the prices of $10 and $8, the price elasticity of demand is: a. .5 b. .9 c. 1.11 d. 2 Answer: b Feedback: Using the midpoint formula, the elasticity is calculated as (22 – 18) / 20 ÷ (10 – 8) / 9 = .9. 2. Suppose that as the price of a good rises from $3.90 to $4.10, the quantity demanded falls from 210 to 190. Then the price elasticity of demand is: a. .5 b. .8 c. 1.25 d. 2 Answer: d Feedback: Using the midpoint formula, the elasticity is calculated as (210 – 190) / 200 ÷ (4.10 – 3.90) / 4.00 = 2. 3. While it is relatively easy to shift land from production from one type of grain to another, the process takes a considerable amount of time. This implies that: a. a change in the demand for wheat will not affect its price in the short run b. the long run supply of oats is more elastic than the long run supply of wheat c. a change in the demand for corn will change quantity supplied more in the short run than the long run d. the supply of barley is more elastic in the long run than the short run Answer: d Feedback: In the short run, resources are difficult to shift from one grain to another so that increases in price elicit very little change in quantity supplied. In the long run, however, more or less land can be planted in response to price changes. Q D P 18 22 $8 $10
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4. If the short run supply of good X is perfectly inelastic: a. the price elasticity coefficient of supply is infinite b. the price elasticity coefficient of supply is one c. the short-run supply curve graphs as a vertical line d. the short-run supply curve graphs as a horizontal line Answer: c Feedback: A good whose supply is perfectly inelastic is one whose quantity supplied does not change in response to a change in price. This implies a vertical supply curve. 5. Use the following diagram to answer the next question. Refer to the diagram. If total revenue at price P 3 is the same at price P 2 , the in the P 2 P 3 price range, demand is: a. relatively elastic b. relatively inelastic c. of unit elasticity d. perfectly elastic Answer: c Feedback: If demand is unit elastic, a change in price is exactly offset by a proportional change in quantity demanded, leaving total revenue unchanged. 6. An increase in demand for a product whose supply is perfectly elastic will: a. increase quantity but leave price unchanged b. increase quantity and price proportionally c. increase price but leave quantity unchanged d. leave both price and quantity unchanged Answer: a Feedback: The supply curve will be horizontal in this instance. Quantity supplied will increase to meet any increase in demand with no increase in price.
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7. Suppose there is an inverse relationship between the price of one good and the quantity demanded of another. We could conclude that: a. the demand for one is elastic while the demand for the other is inelastic b. the cross elasticity of demand is negative and the two goods are complements
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This note was uploaded on 02/22/2011 for the course ECON 2023 taught by Professor Meier during the Spring '11 term at St. Petersburg College.

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Practice_Ch6_ - Chapter 6 Practice Test Elasticity 1 Use...

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