AP Micro Economics Make-Up: Unit II-B

Identify the letter of the choice that best completes the statement or answers the question. The price elasticity of demand measures

• a. how responsive buyers are to a change in income.

• b. how responsive sellers are to a change in price.

• c. how responsive buyers are to a change in price.

• d. how responsive sellers are to a change in buyers' income.

If a good is a necessity, demand for the good would tend to be

• elastic

• inelastic

• unit elastic

• horizontal

Demand for a good would tend to be more elastic,

• the greater the availability of complements.

• the longer the period of time considered.

• the broader the definition of the market.

• the fewer substitutes there are.

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a

• 4.0 percent decrease in the quantity demanded.

• 10 percent decrease in the quantity demanded.

• 40 percent decrease in the quantity demanded.

• 400 percent decrease in the quantity demanded.

In Graph 5-3, as price falls from P_A to P_B, which demand curve is most elastic?

• D_1

• D_2

• D_3

• All of the above are equally elastic.

• a. positive, so Joan considers hamburger to be an inferior good.

• b. positive, so Joan considers hamburger to be a normal good and a necessity.

• c. negative, so Joan considers hamburger to be an inferior good.

• d. negative, so Joan considers hamburger to be a normal good.

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

• negative and therefore the good is an inferior good.

• negative and therefore the good is a normal good.

• positive and therefore the good is an inferior good.

• positive and therefore the good is a normal good.

Cross-price elasticity of demand measures

• how the quantity demanded of a good changes as price changes.

• how the quantity demanded of one good changes as the price of another good changes.

• how the quantity demanded of a good changes as income changes.

• how the price of a good is affected when income changes.

If the cross-price elasticity of demand is 1.25, then the two goods would be

• complements

• luxuries

• normal goods

• substitutes

Suppose the government increases the tax on gasoline in order to raise revenue. Since raising the gasoline tax would increase the price of gasoline, the government must be assuming that:

• the demand for gasoline is price elastic.

• the demand for gasoline is price inelastic.

• the demand for gasoline is price unit elastic.

• the tax on gasoline will not affect the consumption of gasoline.