Question 1

In Brazil, the income elasticity of demand for dairy is 0.7 and for fruit and vegetables it is 0.5. These elasticities mean that if the income of Brazilians decreases, they will purchase ________ dairy and ________ fruits and vegetables.
A) less; less
B) more; more
C) more; less
D) less; more

Accepted Answer

The answer of In Brazil, the income elasticity of demand...

Question 2

"The Department of Agriculture came out today with its prediction for food price next year-4 to 5 percent increases on top of this year's already steep gains… Eggs, dairy products and cereals are up 10 percent... But the USDA says another big part of the American diet has seen only moderate price increases. Beef, poultry and pork will be up only 3 percent this year." Suppose a cattle producer increased the quantity of beef he supplies by 2 percent when the price of beef increased by 3 percent. His elasticity of supply is
A) inelastic.
B) elastic.
C) perfectly elastic.
D) perfectly inelastic.

Accepted Answer

The increase in quantity supplied (2 percent) is less than the increase in price (3 percent), indicating an inelastic supply. This means that the producer is not very responsive to changes in price and is unable to increase supply significantly in response to a price change.

Question 3

The price elasticity of demand for movies is approximately 1 and 500,000 tickets are sold per day. If the average price of a movie ticket increases by 20 percent, the number of tickets sold each day decreases to ________.
A) 400,000
B) 300,000
C) 420,000
D) 475,000

Accepted Answer

The answer of The price elasticity of demand for movies...

Question 4

Specialty chocolate bars with a high cocoa content have been drawing a lot of attention in gourmet circles in 2008 but the price of cocoa beans has increased more than 44 percent in this time period. In response to the increase in the price of cocoa beans, Rogue Chocolatier has increased the price of their gourmet chocolate bars by 20 percent. Rogue notices their firm's total revenue increased after the price increase. We can determine that the demand for Rogue's bars is ________.
A) inelastic
B) elastic
C) perfectly inelastic
D) unit elastic

Accepted Answer

The fact that Rogue Chocolatier was able to increase the price of their chocolate bars by 20 percent and still see an increase in total revenue suggests that the demand for their bars is inelastic. This means that customers are willing to pay a higher price for Rogue's specialty chocolate bars, indicating that the bars are considered to be a luxury good or have a loyal customer base who are willing to pay a premium for their product. If the demand for the bars were elastic, increasing the price by 20 percent would likely have led to a decrease in total revenue as customers may have sought out cheaper alternatives.

Question 5

"The Department of Agriculture came out today with its prediction for food price next year-4 to 5 percent increases on top of this year's already steep gains… Eggs, dairy products and cereals are up 10 percent... But the USDA says another big part of the American diet has seen only moderate price increases. Beef, poultry and pork will be up only 3 percent this year." Calculate Jennika's price elasticity of demand for pork if she decreases her consumption by 4 percent.
A) 1.25
B) 1
C) 0.75
D) 0.66

Accepted Answer

The answer of "The Department of Agriculture came out today...

Question 6

Redbox rents DVDs for $1 per day via self-service kiosks located across the United States. In 2007, each kiosk averaged about 50 rentals per day. Suppose Redbox increases their daily price to $1.50. What is the price elasticity of demand if rentals decrease by 20 per day?
A) 1.25
B) 1.33
C) 1
D) 0.8

Accepted Answer

The answer of Redbox rents DVDs for $1 per day...

Question 7

Grape juice prices increased by 20 percent in 2007. Suppose in response grape growers did not increase or decrease their grape production. The elasticity of supply is best described as
A) perfectly inelastic.
B) perfectly elastic.
C) inelastic.
D) elastic.

Accepted Answer

If grape growers did not increase or decrease their grape production in response to the 20% increase in grape juice prices, this suggests that their production is not sensitive to changes in price. This is characteristic of perfectly inelastic supply, where the quantity supplied is fixed regardless of changes in price. Therefore, the best choice is A) perfectly inelastic.

Question 8

Propecia was developed to treat mild to moderate male pattern hair loss in men. Marco has hair loss and he is willing to pay any amount of money to be able to buy this drug each month. Marco's price elasticity of demand is ________.
A) perfectly inelastic
B) perfectly elastic
C) elastic
D) inelastic

Accepted Answer

The answer of Propecia was developed to treat mild to...

Question 9

Redbox rents DVDs for $1 per day via self-service kiosks located across the United States. The CFO of Redbox wants to identify how responsive consumers are to an increase or decrease in the daily price of a rental. The economic concept the CFO wants to understand is
A) price elasticity of demand.
B) elasticity of supply.
C) changes in demand.
D) changes in supply.

Accepted Answer

The CFO of Redbox wants to understand how price changes affect the quantity demanded by consumers, which is the concept of price elasticity of demand.

Question 10

Netflix is the largest online DVD rental service offering flat rate online streaming to customers in the United States. Currently, there are approximately 8 million subscribers. Suppose Netflix decreases its flat rate rental by 10 percent and an additional 1 million people subscribe. This information means that Netflix's demand is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.

Accepted Answer

If a decrease in price results in a proportionately larger increase in quantity demanded, the demand is considered elastic. In this case, the decrease in price led to an additional 1 million subscribers, which indicates a very sensitive response to price changes. Therefore, Netflix's demand is elastic.

Question 11

Apple, the consumer electronics giant, on Tuesday rolled out new versions of its popular iPod music player. CEO Steve Jobs also unveiled cheaper models of its Touch music player, a touchscreen-only device. An 8-gigabyte version now costs $229, down from $299. A 32-gigabyte model costs $399, down from $499. Suppose when the price of an iPod decreases by 20 percent, the number of songs downloaded on iTunes increases by 30 percent. Based on this information iTunes are
A) a normal good.
B) an inferior good.
C) substitutes for iPods.
D) complements to iPods.

Accepted Answer

iTunes are complements to iPods because when the price of iPods decreases, the demand for them increases along with the demand for songs downloaded on iTunes.

Question 12

"The Department of Agriculture came out today with its prediction for food price next year-4 to 5 percent increases on top of this year's already steep gains… Eggs, dairy products and cereals are up 10 percent... But the USDA says another big part of the American diet has seen only moderate price increases. Beef, poultry and pork will be up only 3 percent this year." Suppose the price elasticity of demand for beef is elastic. Consumption would then
A) decrease by greater than 3 percent.
B) increase by greater than 3 percent.
C) decrease by less than 3 percent.
D) increase by less than 3 percent.

Accepted Answer

If the price elasticity of demand for beef is elastic, a 3 percent increase in price will result in a greater than 3 percent decrease in consumption. This is because consumers are more sensitive to changes in price and will be more likely to switch to substitute goods as the price of beef increases.

Question 13

Apple, the consumer electronics giant, on Tuesday rolled out new versions of its popular iPod music player. CEO Steve Jobs also unveiled cheaper models of its Touch music player, a touchscreen-only device. An 8-gigabyte version now costs $230, down from $300. A 32-gigabyte model costs $400, down from $500. Calculate the price elasticity of demand for a 32 gigabyte Touch player if the quantity demanded increases from 850,000 to 950,000 the month after the price decrease.
A) 0.5
B) 1.5
C) 1
D) 0.75

Accepted Answer

The answer of Apple, the consumer electronics giant, on Tuesday...

Question 14

California is the sole producer of almonds in the United States. Suppose the price for a pound of almonds has increased during the past year. It is also predicted that almond prices will remain high. Over time, we predict that the
A) elasticity of supply will increase.
B) elasticity of supply will decrease.
C) elasticity of supply will remain constant.
D) elasticity of supply will increase and then decrease.

Accepted Answer

The answer of California is the sole producer of almonds...

Question 15

The cost of basics like milk, bread, potatoes and bananas has jumped in the past year, forcing families to nix luxuries, steer away from organic goods and buy more house brands. What does customer Elize Joseph mean when she said, "You can cut back on buying clothes and shoes, but you can't do that with food; you have to eat"?
A) The price elasticity of demand for food is higher than for clothes.
B) The price elasticity of demand for food is lower than for clothes.
C) Income elasticity of demand for food is positive.
D) Income elasticity of demand for food is negative.

Accepted Answer

Customer Elize Joseph suggests that food is a necessity and cannot be completely eliminated from the budget, suggesting that the price elasticity of demand for food is lower than for clothes. This implies that consumers are likely to continue buying food even if the price increases, whereas they may cut back on purchases of clothes and shoes. There is no information provided about income elasticity of demand for food, so choices C and D cannot be determined from the given information.

Question 16

Apple, the consumer electronics giant, on Tuesday rolled out new versions of its popular iPod music player. CEO Steve Jobs also unveiled cheaper models of its Touch music player, a touchscreen-only device. An 8-gigabyte version now costs $229, down from $299. A 32-gigabyte model costs $399, down from $499. Steve Jobs decided to decrease the price of iPods in an attempt to increase total revenue from iPod sales. One of his employees, Jess, disagrees and suggests that an iPod price increase will increase total revenue. Who is correct?
A) Steve is correct if demand is price elastic.
B) Steve is correct if demand is price inelastic.
C) Jess is correct if demand is price elastic.
D) Jess is correct if demand is unit elastic.

Accepted Answer

Steve is correct if the demand for iPods is price elastic, which means that a decrease in price will lead to a proportionately greater increase in quantity demanded and total revenue. However, if demand is price inelastic (meaning a change in price has little effect on quantity demanded), Jess would be correct that an increase in price would increase total revenue. The answer cannot be D as it does not provide a clear indication of who is correct.

Question 17

"The Department of Agriculture came out today with its prediction for food price next year-4 to 5 percent increases on top of this year's already steep gains… Eggs, dairy products and cereals are up 10 percent... But the USDA says another big part of the American diet has seen only moderate price increases. Beef, poultry and pork will be up only 3 percent this year." If Raul's demand for dairy products is unit elastic, his expenditure on dairy will
A) not change.
B) increase less than 10 percent.
C) decrease by 10 percent.
D) increase by 10 percent.

Accepted Answer

The answer of "The Department of Agriculture came out today...

Question 18

Netflix is the largest online DVD rental service offering flat rate online streaming to customers in the United States. Currently, there are approximately 8 million subscribers. Suppose Netflix increases their average flat rate by 10 percent and observe their total revenues increase. Based on this information, the
A) price elasticity of demand for Netflix subscription is inelastic.
B) price elasticity of demand for Netflix subscription is elastic.
C) price elasticity of demand for Netflix subscription is unit elastic.
D) income elasticity of demand for Netflix subscription is elastic.

Accepted Answer

If Netflix can increase their price by 10% and still observe an increase in total revenue, it indicates that the demand for their service is relatively insensitive to price changes, or in other words, the price elasticity of demand is low. This suggests that their subscribers are likely to continue using the service even if the price increases, making the demand for Netflix subscription inelastic.

Question 19

Of the following items, which has the most inelastic demand?
A) food
B) fruit
C) apples
D) Gala apples

Accepted Answer

The answer of Of the following items, which has the...

Question 20

Specialty chocolate bars with a high cocoa content have been drawing a lot of attention in gourmet circles in 2008 but the price of cocoa beans has increased more than 44 percent in this time period. In response to the increase in the price of cocoa beans, Rogue Chocolatier has increased the price of their gourmet chocolate bars by 20 percent. Rogue observes the quantity of their bars sold decreased by 15 percent. This means the price elasticity of demand for gourmet chocolate bars is ________.
A) elastic
B) inelastic
C) undefined
D) unit elastic

Accepted Answer

The decrease in quantity demanded (15%) is less than the increase in price (20%), indicating that demand for gourmet chocolate bars is relatively inelastic.

Quiz 4: Elasticity

In Brazil, the income elasticity of demand for dairy is 0.7 and for fruit and vegetables it is 0.5. These elasticities mean that if the income of Brazilians decreases, they will purchase dairy and fruits and vegetables.

The price elasticity of demand for movies is approximately 1 and 500,000 tickets are sold per day. If the average price of a movie ticket increases by 20 percent, the number of tickets sold each day decreases to ________.

Redbox rents DVDs for $1 per day via self-service kiosks located across the United States. In 2007, each kiosk averaged about 50 rentals per day. Suppose Redbox increases their daily price to $1.50. What is the price elasticity of demand if rentals decrease by 20 per day?

Grape juice prices increased by 20 percent in 2007. Suppose in response grape growers did not increase or decrease their grape production. The elasticity of supply is best described as

Propecia was developed to treat mild to moderate male pattern hair loss in men. Marco has hair loss and he is willing to pay any amount of money to be able to buy this drug each month. Marco's price elasticity of demand is ________.

Redbox rents DVDs for $1 per day via self-service kiosks located across the United States. The CFO of Redbox wants to identify how responsive consumers are to an increase or decrease in the daily price of a rental. The economic concept the CFO wants to understand is

California is the sole producer of almonds in the United States. Suppose the price for a pound of almonds has increased during the past year. It is also predicted that almond prices will remain high. Over time, we predict that the

Of the following items, which has the most inelastic demand?