Lesson 6

The price elasticity of demand for Nittany Lion ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded?

• 2.5 percent

• 40 percent

• 25 percent

• 0.4 percent

If demand is perfectly elastic, the absolute value of the price elasticity of demand is

• one

• greater than the absolute value of the slope of the demand curve

• greater than one

• less than one

If demand is perfectly elastic, the absolute value of the price elasticity of demand is

• one

• zero

• infinity

• equal to the absolute value of the slope of the demand curve

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

• The expenditure on the good is small relative to one's budget

• The time period under consideration is short

• A wide variety of substitutes are available for the good

• The good is a necessity

Along a downward sloping, linear demand curve, total revenue is the greatest

• where demand is the most inelastic

• where demand is unit elastic

• where demand is normal

• where demand is the most elastic

On a graphed, downward sloping, linear demand curve, the inelastic portion is

• the top/left half of the demand curve

• the middle (midpoint) of the demand curve

• the bottom/right half of the demand curve

• the entire demand curve

Cross-price elasticity of demand is calculated as the

• percentage change in quantity demanded of one good divided by percentage change in price of a different good

• percentage change in quantity demanded divided by percentage change in a price of a good

• percentage change in quantity sold divided by percentage change in buyers' incomes

• percentage change in quantity supplied divided by percentage change in price of a good

Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income fell to $30,000. This year, his household income fell to $20,000 and Sefton purchased 80lbs of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is

• positive, so Sefton considers potatoes to be an inferior good

• positive, so Sefton considers potatoes to be a normal good and a necessity

• negative, so Sefton considers potatoes to be an inferior good

• negative, so Sefton considers potatoes to be a normal good

The price elasticity of supply is equal to

• the percentage change in price divided by the percentage change in quantity supplied

• the change in quantity supplied divided by the change in price

• the value of the slope of the supply curve

• the percentage change in quantity supplied divided by the percentage change in price

Suppose the government implements a tax on a product where the absolute value of the elasticity of supply is 1.8. Who will pay the greater proportion of the tax.

• Consumers

• Consumers and producers will share the tax equally

• Producers

• It depends whether the government levels the tax on consumers or on producers