Principles of Economics - Eco 2305

Summer II 2013
Instructor: Menelik Geremew
Problem Set #
!ue !"te: 0#$1%$2013
1. When the absolute value of the percentage change in quantity demanded is less than the
absolute value of the percentage change in price, demand is:
A) inelastic.
B) elastic.
C) unitelastic.
!) un"no#n.
$. %uppose price is initially &$', but then decreases to &1(. )he absolute value of the
percentage change in price *using the midpoint method) is:
A) $+,.
B) 1',.
C) (,.
!) 1(,.
-age 1
.se the follo#ing to ans#er question /:
&i'ure: M"rket for ("ttes
/. *0igure: 1ar"et for 2attes) 3n the mar"et for lattes sho#n in the figure, #hat is the price
elasticity of demand bet#een prices of &$ and &$.(' per cup, using the midpoint
formula4
A) 1
B) 1.$+
C) $.(1
!) /
5. )he Co6y Chair Company believes it can sell $'' chairs at &$'' per chair, or /'' chairs
at &1(' per chair. .sing the midpoint formula, the price elasticity of demand *to the
nearest tenth) is:
A) $.(.
B) 1.5.
C) '.7.
!) '.(.
-age $
.se the follo#ing to ans#er question (:
)"ble: M"rket for Pi**"
(. *)able: 1ar"et for -i66a) )he price elasticity of demand for pi66a bet#een the prices of
&15 and &1$ per pi66a #hen income is &1,''' per month is:
A) '.8.
B) 1.
C) 1.8.
!) $.
.se the follo#ing to ans#er question 8:
&i'ure: !em"n+ ,ur-e for .il
-age /
8. *0igure: !emand Curve for 9il) What is the appro:imate price elasticity of demand
bet#een &$' and &$1, using the midpoint method4
A) '.$1
B) '.5+
C) $.1
!) 5.+
7. 3f the price of a good is increased by $', and the quantity demanded changes by 1(,,
then the price elasticity of demand is equal to:
A) '.7(.
B) appro:imately './/.
C) appro:imately 1.//.
!) 1.
;. A men<s tie store sold an average of /' ties per day #hen the price #as &( per tie but
sold (' of the same ties per day #hen the price #as &/ per tie. )he absolute value of the
price elasticity of demand, using the midpoint method, is:
A) greater than 6ero but less than 1.
B) equal to 1.
C) greater than 1 but less than /.
-age 5
!) greater than /.
+. 3f the price of chocolatecovered peanuts decreases from &1.'( to &'.+( and the quantity
demanded increases from 1;' bags to $$' bags, this indicates that, if other things are
unchanged, the absolute value of the price elasticity of demand using the midpoint
method is:
A) '.(.
B) 1.
C) $.
!) greater than $.
.se the follo#ing to ans#er questions 1'11:
Scen"rio: Price El"sticit/
When calculating price elasticity #ith the follo#ing data, please use the midpoint method and
ta"e the absolute value.

!em"n+ "n+ Price El"sticit/
1'. *%cenario: -rice =lasticity) .sing the midpoint formula, #hat is the price elasticity of
demand bet#een &$.(' and &$.$(4
A) +
B) 1+
C) 11+
-age (
!) '.(
11. *%cenario: -rice =lasticity) .sing the midpoint formula, #hat is the price elasticity of
demand bet#een &$.$( and &$.''4
A) 5.''
B) (.87
C) +.''
!) 17.8
1$. =ach month >essica buys e:actly 1( Big 1acs regardless of the price. >essica<s price
elasticity of demand for Big 1acs is:
A) '.
B) 1.
C) greater than 1.
!) less than 1, but greater than '.
1/. 3f an item increases /', in price and the quantity decreases by 5',, the price elasticity
of demand is:
A) '.
B) 1.
C) greater than 1.
!) less than 1, but greater than '.
15. )he price elasticity of demand for s"iing lessons in ?e# @ampshire is over 1.''. )his
means that the demand is AAAAAAAA in ?e# @ampshire.
A) price elastic
B) price inelastic
C) price unitelastic
!) perfectly price elastic
-age 8
1(. %uppose the price of gasoline increases 1', and quantity demanded per day in 9rlando
drops (, per day. )he price elasticity of demand for gasoline in 9rlando is:
A) price elastic.
B) price inelastic.
C) price unitelastic.
!) perfectly price inelastic.
18. A maBor state university in the %outh recently raised tuition by 1$,. An economics
professor at this university as"ed his students, C!ue to the increase in tuition, ho# many
of you #ill transfer to another university4D 9ne student out of about /'' said that he or
she #ould transfer. Based on this information, the price elasticity of demand for
education at this university is:
A) 1.
B) highly elastic.
C) highly inelastic.
!) '.
17. 3f the estimated price elasticity of demand for foreign travel is 5, then:
A) a $', decrease in the price of foreign travel #ill increase quantity demanded by
;',.
B) demand for foreign travel is inelastic.
C) a 1', increase in the price of foreign travel #ill increase quantity demanded by
5',.
!) a $', increase in the price of foreign travel #ill increase quantity demanded by
;',.
1;. Along the upper end of a linear demand curve, the price elasticity of demand #ill be:
A) priceinelastic.
B) priceelastic.
C) price unitelastic.
!) negative.
-age 7
1+. Along the lo#er end of a linear demand curve, the price elasticity of demand #ill be:
A) priceinelastic.
B) priceelastic.
C) price unitelastic.
!) negative.
.se the follo#ing to ans#er questions $'$1:
&i'ure: Estim"tin' Price El"sticit/
$'. *0igure: =stimating -rice =lasticity) Bet#een the t#o prices, P1 and P$, #hich demand
curve has the lo#est price elasticity *absolute value)4
A) D1
B) D$
C) D/
!) D5
$1. *0igure: =stimating -rice =lasticity) Bet#een the t#o prices, P1 and P$, #hich demand
curve has the highest price elasticity *absolute value)4
A) D1
B) D$
C) D/
!) D5
-age ;
$$. )he crossprice elasticity of demand of complementary goods is:
A) less than '.
B) equal to '.
C) greater than '.
!) bet#een ' and 1.
$/. 3f your purchases of shoes increase from + pairs per year to 11 pairs per year #hen the
price of shirts increases from &; to &1$, then, for you, shoes and shirts are considered:
A) inferior goods.
B) lu:ury goods.
C) substitute goods.
!) complementary goods.
$5. %uppose that the crossprice elasticity of demand for 1ountain !e# #ith respect to the
price of Co"e is '.7. )his implies that the t#o goods are:
A) substitutes.
B) complements.
C) inferior.
!) normal.
$(. 3f the income elasticity of demand for a good is positive, the good is said to be a*n):
A) inferior good.
B) substitute good.
C) normal good.
!) positive good.
-age +
$8. 3f your purchases of shoes increase from + pairs per year to 11 pairs per year #hen your
income increases from &1+,''' to &$1,''' a year, other things equal, then, for you,
shoes are considered a*n):
A) normal good.
B) inferior good.
C) complementary good.
!) substitute good.
$7. =ric<s income increased from &5',''' to &(',''' per year. =ric<s consumption of tic"ets
to pro football games increased from $ to 5 per year. .sing the midpoint formula, his
income elasticity of demand for pro football game tic"ets is equal to AAAAAAAA and
football game tic"ets are AAAAAAAA goods.
A) $
1
E/F inferior
B) 1
$
E/F normal
C) G/F inferior
!) 1/F normal
$;. %uppose the price of real estate increases by /7.11, in 9a"land ne:t year. 3f the
quantity of ne# homes supplied does not change, this means that the price elasticity of
AAAAAAAA #ill be perfectly AAAAAAAA in 9a"land ne:t year.
A) demandF elastic
B) supplyF inelastic
C) demandF inelastic
!) supplyF elastic
$+. An attorney supplies 5' hours of #or" per #ee" #hen her fee is &1'' per hour, but
supplies 8' hours of #or" per #ee" #hen her fee rises to &1$' per hour. .sing the
midpoint formula, her elasticity of supply is equal to AAAAAAAA.
A) 1
B) '.;
C) $.$
!) '.5(
-age 1'
/'. A hotel has a capacity of 1'' rooms. Which of the follo#ing statements best describes
the elasticity of supply for rooms at this hotel4
A) )he supply is elastic at quantities above 1'' rooms, but inelastic at quantities
belo# 1'' rooms.
B) )he elasticity of supply is equal to 1 in the short run, but infinitely elastic in the
long run.
C) )he elasticity of supply is 6ero in the short run because the shortrun supply curve
is vertical.
!) )he supply is infinitely elastic in the short run, but perfectly inelastic in the long
run.

-age 11