Question 1

Which of the following individuals is LEAST likely to lose their job if the economy is doing poorly?
A)Francesca, who works as a computer repair technician
B)Mercy, who works as a server in a high-end restaurant
C)Kamau, who works at a designer handbag store
D)Maruichi, who works as a manager at a fast-food restaurant

Accepted Answer

Maruichi, working as a manager at a fast-food restaurant, is least likely to lose their job in a poor economy because fast-food restaurants often see stable or increased business during economic downturns as consumers look for more affordable dining options.

Question 2

If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:
A)2.
B)-2.
C)0.5.
D)-0.5.

Accepted Answer

Income Elasticity of Demand = % change in Quantity Demanded / % change in Income
Given, % change in Income = +20%
% change in Quantity Demanded = +10%
Substituting the values in the formula:
Income Elasticity of Demand = 10/20 = 0.5
Therefore, the income elasticity of demand for the item is 0.5, which means that the item is a normal good with a relatively inelastic demand.

Question 3

If income rises by 10% and the quantity demanded of an item rises by 20%, the income elasticity of demand for this item is:
A)2.
B)-2.
C)0.5.
D)-0.5.

Accepted Answer

The income elasticity of demand formula is the percentage change in quantity demanded divided by the percentage change in income. Therefore, income elasticity of demand = (20%/10%) = 2. This indicates that the item is a luxury good, as the quantity demanded increases more than proportionally to the increase in income.

Question 4

If income rises by 20% and the quantity demanded of an item falls by 20%, the income elasticity of demand for this item is:
A)-1.
B)1.
C)-2.
D)-0.5.

Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, it is (-20%/20%) = -1, indicating that the item is an inferior good, as demand decreases when income increases.

Question 5

If income rises by 10% and the quantity demanded of an item falls by 30%, the income elasticity of demand for this item is:
A)0.67.
B)-0.33.
C)0.33.
D)-3.

Accepted Answer

Income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income. Here, income rises by 10% and the quantity demanded falls by 30%. Hence, income elasticity of demand is:

= (% Change in Quantity Demanded)/(% Change in Income)
= -30%/10%
= -3

A negative income elasticity of demand indicates an inferior good, i.e., as income increases, the demand for the good falls. Therefore, answer D is correct.

Question 6

Delilah's income rises by 8%. She decides to increase the number of movie tickets she purchases by 20%. Her income elasticity of demand for movie tickets is:
A)2.5.
B)0.4.
C)0.8.
D)-2.5.

Accepted Answer

Income elasticity of demand is defined as the percentage change in quantity demanded of a good or service divided by the percentage change in income.

In this scenario, Delilah's income increases by 8% and she decides to increase the number of movie tickets she purchases by 20%. Using the formula for income elasticity of demand:

% change in quantity demanded = 20%
% change in income = 8%

Income elasticity of demand = (% change in quantity demanded) / (% change in income)
= 20% / 8%
= 2.5

Since the income elasticity of demand is greater than 1, this means that movie tickets are a luxury good for Delilah - her demand for movie tickets is very responsive to changes in her income.

Question 7

Jonathan's income falls by 15%. He decides to cut down his purchases of high-end restaurant meals by 20%. His income elasticity of demand for high-end restaurant meals is:
A)1.33.
B)-0.75.
C)0.75.
D)-1.33.

Accepted Answer

The answer of Jonathan's income falls by 15%. He decides...

Question 8

Good M has an income elasticity of demand of -0.7. Which of the following items might good M be?
A)champagne
B)cognac
C)organic, fresh juice
D)generic-brand toothpaste

Accepted Answer

Good M, with an income elasticity of demand of -0.7, is an inferior good (since the income elasticity is negative). This means that as income increases, the demand for the good decreases. Among the options provided, generic-brand toothpaste is most likely to be considered an inferior good, as people might switch to more expensive or premium brands as their income increases.

Question 9

You are told that good M has an income elasticity of demand of 5. Which of the following items might good M be?
A)a hamburger
B)a hot dog
C)a premium computer
D)a used, 1999 budget four-door sedan

Accepted Answer

A high income elasticity of demand (greater than 1) indicates that a good is a luxury item, meaning that as income increases, demand for the good increases by a proportionately larger amount. A premium computer is a luxury item that people are likely to buy more of as their incomes rise, making it the most likely option with an income elasticity of demand of 5. The other options are not likely to have such a high income elasticity of demand as they are either basic necessities (like a hamburger or hot dog) or relatively low-cost items (like a used car from 1999).

Question 10

The price of a dozen eggs falls from $3 to $2.70. In response to this price change, the quantity supplied of eggs falls from 100,000 dozen eggs to 75,000 dozen eggs. What is the price elasticity of supply for eggs?
A)2.7
B)0.37
C)0.5
D)2

Accepted Answer

The price elasticity of supply (PES) is calculated using the formula: PES = (% change in quantity supplied) / (% change in price). Here, the % change in quantity supplied is (75,000 - 100,000) / 100,000 = -25%, and the % change in price is ($2.70 - $3) / $3 = -10%. Thus, PES = (-25%) / (-10%) = 2.5, which rounds to 2.7 when considering significant figures or approximation in the context of the provided options.

Question 11

The price of cakes rises by 15%. In response, the quantity supplied of cakes rises by 30%. The price elasticity of supply for cakes is:
A)2.
B)0.5.
C)-0.5.
D)0.33.

Accepted Answer

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price, which is (30% / 15%) = 2.

Question 12

The price of gluten-free buns falls by 7%. In response, the quantity supplied of gluten-free buns falls by 3.5%. The price elasticity of supply for gluten-free buns is:
A)2.
B)0.5.
C)-0.5.
D)0.33.

Accepted Answer

The price elasticity of supply is calculated by dividing the percentage change in quantity supplied by the percentage change in price. Using the given values, we can calculate the price elasticity of supply as:
(–3.5%) / (–7%) = 0.5
Since the result is positive, we can infer that the supply curve is upward sloping. The magnitude of the elasticity tells us that the quantity supplied is relatively unresponsive to changes in price, indicating that suppliers have a limited ability to adjust their production levels in response to price changes.

Question 13

The price of a dozen eggs rises from $3 to $4.70. In response to this price change, quantity supplied increases from 100,000 dozen eggs to 127,000 dozen eggs. What is the approximate price elasticity of supply for eggs?
A)1.86
B)3.52
C)0.48
D)2.5

Accepted Answer

Price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price.

Percentage change in quantity supplied = ((127,000 - 100,000)/100,000) x 100% = 27%
Percentage change in price = ((4.70 - 3)/3) x 100% = 56.7%

Price elasticity of supply = 27% / 56.7% = 0.48

Therefore, the approximate price elasticity of supply for eggs is 0.48, which means that quantity supplied is relatively inelastic in response to changes in price. The best choice is C.

Question 14

If a firm produces a product that has easily available variable inputs, its supply curve will be:
A)perfectly elastic.
B)perfectly inelastic.
C)relatively steep.
D)relatively flat.

Accepted Answer

If a firm produces a product that has easily available variable inputs, its supply curve will be relatively flat because it can increase production easily in response to changes in price without much change in cost.

Question 15

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C, and D. Which of the products has the most elastic supply curve? 
A)product A
B)product B
C)product C
D)product D

Accepted Answer

Product C has the most elastic supply curve because it has a flatter slope, indicating that a slight change in price results in a large change in quantity supplied. This means that suppliers of product C are very responsive to changes in price. Conversely, products A, B, and D have steeper slopes, indicating less responsiveness to changes in price and therefore less elastic supply curves.

Question 16

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the products has a perfectly elastic supply curve?

A)product A
B)product B
C)product C
D)product D

Accepted Answer

The answer of (Figure: Supply Curves) The figure shows four...

Question 17

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the supply curves most likely shows a product that uses variable inputs that are the most readily available? 
A)product A
B)product B
C)product C
D)product D

Accepted Answer

The answer of (Figure: Supply Curves) The figure shows four...

Question 18

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the products has a perfectly inelastic supply curve? 
A)product A
B)product B
C)product C
D)product D

Accepted Answer

Product A has a perfectly inelastic supply curve because the quantity supplied remains constant regardless of changes in price.

Question 19

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the products has an elastic, but not perfectly elastic, supply curve? 
A)product A
B)product B
C)product C
D)product D

Accepted Answer

The answer of (Figure: Supply Curves) The figure shows four...

Question 20

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the products has an inelastic, but not perfectly inelastic supply curve? 
A)product A
B)product B
C)product C
D)product D

Accepted Answer

The answer of (Figure: Supply Curves) The figure shows four...

Quiz 5: Elasticity: Measuring Responsiveness

Which of the following individuals is LEAST likely to lose their job if the economy is doing poorly?

If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:

If income rises by 10% and the quantity demanded of an item rises by 20%, the income elasticity of demand for this item is:

If income rises by 20% and the quantity demanded of an item falls by 20%, the income elasticity of demand for this item is:

If income rises by 10% and the quantity demanded of an item falls by 30%, the income elasticity of demand for this item is:

Delilah's income rises by 8%. She decides to increase the number of movie tickets she purchases by 20%. Her income elasticity of demand for movie tickets is:

Jonathan's income falls by 15%. He decides to cut down his purchases of high-end restaurant meals by 20%. His income elasticity of demand for high-end restaurant meals is:

Good M has an income elasticity of demand of -0.7. Which of the following items might good M be?

You are told that good M has an income elasticity of demand of 5. Which of the following items might good M be?

The price of a dozen eggs falls from $3 to $2.70. In response to this price change, the quantity supplied of eggs falls from 100,000 dozen eggs to 75,000 dozen eggs. What is the price elasticity of supply for eggs?

The price of cakes rises by 15%. In response, the quantity supplied of cakes rises by 30%. The price elasticity of supply for cakes is:

The price of gluten-free buns falls by 7%. In response, the quantity supplied of gluten-free buns falls by 3.5%. The price elasticity of supply for gluten-free buns is:

The price of a dozen eggs rises from $3 to $4.70. In response to this price change, quantity supplied increases from 100,000 dozen eggs to 127,000 dozen eggs. What is the approximate price elasticity of supply for eggs?

If a firm produces a product that has easily available variable inputs, its supply curve will be:

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C, and D. Which of the products has the most elastic supply curve?

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the products has a perfectly elastic supply curve?

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the supply curves most likely shows a product that uses variable inputs that are the most readily available?

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the products has a perfectly inelastic supply curve?

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the products has an elastic, but not perfectly elastic, supply curve?

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the products has an inelastic, but not perfectly inelastic supply curve?