#### ECO 204 Exam 2

The price elasticity of demand is a measure of the
A) relationship between price and profitability.
B) sensitivity of a good's price to changes in demand
C) effect of changes in demand on the price
D) responsiveness of buyers if a good to changes in its p

D) responsiveness of buyers if a good to changes in its price

The basic formula for the price elasticity of demand coefficient is
A) percentage change in quantity demanded/ percentage change in price.
B)absolute decline in price/ absolute increase in quantity demanded
C) absolute decline in quantity demanded/ absolu

A) percentage change in quantity demanded/ percentage change in price.

The price-elasticity of demand is always negative because of
A) the midpoint formula.
B) percentage- changes being used in the formula.
C) scarcity.
D) the law of demand.

D) the law of demand.

The law of supply suggests that the price-elasticity of supply is always:
A) unknown
B) positive
C) zero
D) negative

B) positive

The price of season tickets to a performing arts theater decreases by 3%. As a result, the quantity demanded increases by 6%. The price elasticity of demand for reason tickets is
A) 18
B) 9
C) 2
D) 0.5

C) 2

The price elasticity of demand for a popular sporting event is 2. If the price of a ticket to this event increases by 10%, the quantity of tickets demanded will decreases by
A) 0.2%
B) 10%
C) 5%
D) 20%

D) 20%

If the price-elasticity coefficient for a good is -.75, the demand for that good is decreased as
A) normal
B) inferior
C) elastic
D) inelastic

D) inelastic

Which curve is relatively more elastic at p1?
A) AA
B) BB
C) it cannot be determined
D) Both have the same slope; therefore both have the same elasticity

B) BB

The price elasticity of demand of a straight demand curve is
A) inelastic but does not change at various points on the curve
B) elastic high-price rangers and inelastic in low-price ranges
C) elastic but does not change at various points on the cruve
D) 1

B) elastic high-price rangers and inelastic in low-price ranges

The total revenue received by sellers of a good is computed by
A) adding the price and the quantity sold
B) multiplying the price times the quantity sold
C) multiplying the percentage change in price times the percentage change in quantity
D) dividing the

B) multiplying the price times the quantity sold

You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. To increase total revenues from that product, you should
A) increase the supply of the software
B) i

B) increase the price of the software

In some markets consumers may buy many different brands of product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?
A) "The different brands are almost identical. I always buy the cheape

A) "The different brands are almost identical. I always buy the cheapest.

What is the most likely effect of the development of DVDs, rental movies, and online movie streaming on the movie theater industry?
A) increasing demand for movie theater tickets
B) movie theater tickets become an inferior good
C) increasing price elastic

C) increasing price elasticity of demand for movie theater tickets

We would expect
A) the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general.
B) the demand for Coca-Cola to be less price elastic than the demand for soft drinks in general.
C) no relationship between the price elastici

A) the demand for Coca-Cola to be more price elastic than the

We would expect the cross elasticity of demand between Pepsi and Coke to be
A) positive, indicating substitute goods.
B) negative, indicating substitute goods.
C) positive, indicating general goods.
D) positive, indicating secondary goods.

A) positive, indicating substitute goods.

A 3% increase in the price of tea causes a 6% increase in the demand for coffee.
The cross elasticity of demand for coffee with respect to the price of tea is
A) -0.5. B) +0.5. C) +2.0. D) -2.0.

C) +2.0.

We would expect the cross elasticity of demand between dress shirts and ties to be
A) positive, indicating complementary goods.
B) negative, indicating complementary goods.
C) positive, indicating secondary goods.
D) negative, indicating substitute goods.

B) negative, indicating complementary goods.

A negative income elasticity of demand coefficient indicates that the product
A) follows the law of demand. B) is an inferior good.
C) is a substitute good. D) is a complementary good.

B) is an inferior good.

For which product is the income elasticity of demand most likely to be negative?
C) used clothing D) computer software

C) used clothing

The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by
A) 5% and quantity supplied rises by 7%.
B) 8% and quantity supplied rises by 8%.
C) 10% and quantity supplied remains the same.
D) 7% and quantity supplied rise

D) 7% and quantity supplied rises by 5%.

The satisfaction or pleasure one gets from consuming a good or service is called
A) utility. B) profits. C) price. D) income.

A) utility.

Which of the following statements is correct?
A) When marginal utility is positive, an increase in the quantity consumed will decrease total utility.
B) When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility.

C) When marginal utility is positive, an increase in the quantity consumed will increase total utility.

After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the
A) marginal utility for four pizza slices is negative.
B) marginal utility is positive for the fourth slice and negat

B) marginal utility is positive for the fourth slice and negative for the fifth slice.

Which situation is consistent with the law of diminishing marginal utility?
A) The more pizza Joe eats, the less he enjoys an additional slice.
B) Joe's marginal utility from eating pizza becomes positive after eating three slices.
C) The more pizza Joe e

A) The more pizza Joe eats, the less he enjoys an additional slice.

Use the following table to answer the question below.
Number of Units of Commodity
Total Utility
3
36
4
80
5
150
6
252
7
350
8
440
What is the marginal utility of the fourth unit? 25) ______
A) 80 B) 116 C) 44 D) 36

C) 44

Which of the following is not an assumption of the theory of consumer behavior
described in this chapter?
A) The consumer experiences diminishing marginal utility from consuming goods.
B) The consumer's tastes and preferences continually change within the

B) The consumer's tastes and preferences continually change within the period studied.

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the
A) marginal utility per dollar spent is maximized for each good.
B) total utility is the same for each good.
C) marginal utility of each good is maxi

D) marginal utility per dollar spent is the same for all goods.

If the price of product X rises, then the resulting decline in the amount purchased will
A) increase the total utility from purchases of this good.
B) increase the marginal utility of the last unit consumed of this good.
C) reduce the marginal utility of

B) increase the marginal utility of the last unit consumed of this good.

Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has$20 to spend on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta.
The marginal utility of Alpha is 40 and the marginal utility of Beta is 20. This i

B) in order to maximize utility, Ellie should buy more of Alpha and less of Beta.

A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and that of Y is 16 units. If the unit price of X is $5, then the price of Y must be A)$2 per unit. B) $4 per unit. C)$3 per unit. D) $1 A)$2 per unit.