econ practice exam 2

# econ practice exam 2 - EXAM 2 _ 1. When the rental price of...

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EXAM 2 ____ 1. When the rental price of DVD movies is \$4, Denise rents five per month. When the price is \$1, she rents nine per month. Denise's demand for DVD rentals is a. elastic and her demand curve would be relatively flat. b. inelastic and her demand curve would be relatively steep. c. elastic and her demand curve would be relatively steep. d. inelastic and her demand curve would be relatively flat. ____ 2. For a good that is a Luxury, a. demand tends to be elastic. b. the law of demand often does not apply. c. quantity demanded tends to respond less to a change in price. d. All of the above are correct. ____ 3. Harry's Barber Shop increased its total monthly revenue from \$1,500 to \$1,800 when it raised the price of a haircut from \$5 to \$9. The price elasticity of demand for Harry's Haircuts is a. 0.700. b. 2.200. c. 1.429. d. 0.567. ____ 4. Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the other having an elastic demand. If the producer's objective is to increase total revenue, she should a. decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand. b. charge the same price to both groups of customers. c. increase the price for both groups of customers. d. increase the price charged to customers with the elastic demand and decrease the price charged to customers with the inelastic demand. ____ 5. When small changes in price lead to infinite changes in quantity demanded, demand is perfectly a. elastic and the demand curve will be vertical. b. inelastic and the demand curve will be horizontal. c. inelastic and the demand curve will be vertical. d. elastic and the demand curve will be horizontal. ____ 6. Whether a good is a luxury or necessity depends on a. the preferences of the buyer. b. the price of the good. c. the intrinsic properties of the good. d. how scarce the good is. ____ 7. Which of the following is not a determinant of the price elasticity of demand for a good? a. the availability of substitutes for the good b. the steepness or flatness of the supply curve for the good c. the time horizon d. the definition of the market for the good ____ 8. Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to a. rise by 200 percent. b. fall by 200 percent. c. fall by 40 percent. d. rise by 40 percent

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____ 9. Suppose you are in charge of setting prices at a local sandwich shop. The business needs to increase its total revenue and your job is on the line. If the demand for sandwiches is elastic, you a. should increase the price of sandwiches.
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## This note was uploaded on 03/29/2011 for the course ECON 2103 taught by Professor Staff during the Spring '08 term at Oklahoma State.

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econ practice exam 2 - EXAM 2 _ 1. When the rental price of...

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