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The cross-price elasticity of demand between good X and good Z measures the percentage change in the quantity
demanded of good X in response to a percentage change in
(A) the price of good X
(B) income
(C) the price of good Z
(D) the supply of good Z
(E) total expenditures on good Z
answer C
The difference between what consumers are willing to pay for units of a good and the price consumers actually pay for units of the good is called
(A) marginal utility
(B) producer surplus
(C) consumer surplus
(D) economic rent
(E) a positive externality
answer C
In the absence of market failures, a perfectly competitive market equilibrium is efficient for which of the following
reasons?
(A) Consumer surplus is maximized and consumers are better off relative to producers.
(B) Producer surplus is maximized and producers are better off relative to consumers.
(C) Total economic surplus is maximized and all mutually beneficial transactions are exhausted.
(D) Total economic surplus is distributed equally between producers and consumers.
(E) The quantity of output is produced at a constant cost so that every consumer pays the same price.
answer C
When Tom's income increases from ＄100 to ＄120, the quantity of golf balls he purchases increases from 10 to 12.
What is Tom's income elasticity of demand, and what type of good is a golf ball for Tom?
(A) Income elasticity of demand is 1, and golf balls are a normal good for Tom.
(B) Income elasticity of demand is -1, and golf balls are an inferior good for Tom.
(C) Income elasticity of demand is 10, and golf balls are a normal good for Tom.
(D) Income elasticity of demand is -10, and golf balls are an inferior good for Tom.
(E) Income elasticity of demand is 20, and golf balls are a normal good for Tom.
answer A
Assume that the price elasticity of supply for good Y is 0.5. If the price of good Y decreases by 30 percent, the quantity supplied of good Y will
(A) decrease by 60 percent
(B) decrease by 30 percent
(C) decrease by 15 percent
(D) increase by 0.5 percent
(E) increase by 0.15 percent
answer C
Assume a 10 percent increase in price increased the market quantity supplied by 20 percent. Which of the following is true?
(A) The value of the price elasticity of supply is 2.
(B) The value of the price elasticity of supply is 0.5.
(C) Supply is price inelastic.
(D) Demand is price elastic.
(E) This price-quantity combination violates the law of supply.
answer A
If the value of the price elasticity of supply is 3, which of the following is true?
(A) Supply is inelastic.
(B) A percentage increase in price will lead to a relatively smaller percentage increase in quantity supplied.
(C) The supply curve is downward sloping with respect to the price of output.
(D) A 10 percent decrease in price will decrease the quantity supplied by 30 percent.
(E) A 3 percent increase in price will decrease the quantity supplied by 10 percent.
answer D
The cross-price elasticity of demand for flashlights and Good H is 2.5. This indicates which of the following?
(A) Flashlights and Good H are inferior goods.
(B) Flashlights and Good H are normal goods.
(C) Flashlights and Good H are substitutes in consumption.
(D) Flashlights and Good H are complements in consumption.
(E) Flashlights and Good H both have elastic demand.
answer D
Following a decrease in the supply of oranges, the price of orange juice increased by 20 percent, which resulted in a
10 percent increase in the quantity of apple juice consumed. This implies that the cross elasticity of demand between orange juice and apple juice is
(A) 0
(B) 0.5
(C) 1
(D) 2
(E) indeterminate
answer B
Cross-price elasticity of demand for honey with respect to yogurt is -4. At the current equilibrium, consumers are buying 100 containers of yogurt per week and 20 containers of honey per week. If the price of yogurt increases by 10 percent per container, what will be the new quantity demanded of honey?
(A) 4 containers
(B) 8 containers
(C) 10 containers
(D) 12 containers
(E) 40 containers
answer D
If a one-of-a-kind Etruscan vase is offered for sale at an auction, which, if any, of the following correctly shows the
supply curve for the vase?
answer A
If the income elasticity of demand for good X is negative and the cross-price elasticity of demand between good X and good Y is negative, which of the following must be true of good X?
(A) X is a normal good and is a substitute for Y.
(B) X is a normal good and is a complement to Y.
(C) X is an inferior good and is a substitute for Y.
(D) X is an inferior good and is a complement to Y.
(E) X is a normal good and Y is an inferior good.
answer D
Assume the income elasticity of demand for good Z equals -5.0. Which of the following is true?'
(A) Good Z is a normal good.
(B) Good Z must have an inelastic demand.
(C) An increase in income will lead to a decrease in demand.
(D) An increase in income will lead to an increase in demand.
(E) The income effect of a price increase will be a decrease in quantity demanded at every price.
answer C
Which of the following statements relating to income elasticity is true?
(A) A positive value for the income elasticity coefficient indicates an inferior good.
(B) If good X and good Y have negative income elasticities, then both goods are substitutes.
(C) With an income elasticity coefficient of 0.6, the demand is inelastic and the good is an inferior good.
(D) With an income elasticity coefficient of 5, a 10 percent increase in income will lead to a 50 percent increase in the quantity demanded of the good.
(E)With an income elasticity coefficient of -1.2, a 10 percent increase in income will lead to a 12 percent decrease in the price of the good.
answer D
A 10 percent increase in Sandra's income causes Sandra's consumption of milk to decrease from 10 cartons to 6 cartons. Sandra's income elasticity of demand for milk is
(A) greater than zero and therefore milk is a necessity
(B) greater than zero and therefore milk is a normal good
(C) less than zero and therefore milk is a normal good
(D) less than zero and therefore milk is an inferior good
(E) greater than one and therefore milk is a necessity
answer D
The table above shows the demand schedules for Jill and for all other consumers, as well as the market supply schedule for the same good. The equilibrium price in this market is
(A) $8
(B) $7
(C) $6
(D) $5
(E) $4
answer B
The market for Good Z has relatively elastic supply and demand curves. Market efficiency is attained when
(A) total labor cost is minimized for each firm
(B) each firm experiences economies of scale
(C) consumer surplus is greater than producer surplus
(D) producer surplus is zero
(E) deadweight loss is zero
answer E
Given the demand curve above, if price decreases from $8 to $4 per unit, total consumer surplus will
(A) increase by $4
(B) increase by $8
(C) increase by $12
(D) increase by $18
(E) remain constant at $24
answer D
The quantity of peanuts supplied increased from 40 tons per week to 60 tons per week when the price of peanuts increased from $4 per ton to $5 per ton. The price elasticity of supply for peanuts over this price range is
(A) elastic
(B) inelastic
(C) unit elastic
(D) perfectly elastic
(E) perfectly inelastic
answer A
What is the price elasticity of supply between ＄3 and ＄4 in the graph above?
(A) It is greater than , and the supply is relatively inelastic.
(B) It is greater than , and the supply is relatively elastic.
(C) It is equal to , and the supply is unit elastic.
(D) It is less than , and the supply is relatively elastic.
(E) It is less than , and the supply is relatively inelastic.
answer B
Based on the graph above, the producer surplus at the market equilibrium price and quantity is shown by which area?
(A)GMK
(B)GMN
(C)GZN
(D)ZMN
(E)MNK
answer C
