Economics

Review for chapter 18 and 19

1. If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:

a. increase the quantity demanded by about 2.5 percent.

b. decrease the quantity demanded by about 2.5 percent.

c. increase the quantity demanded by about 25 percent.

d. increase the quantity demanded by about 250 percent.

2. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:

e. 4.00.

f. 2.09.

g. 1.37.

h. 3.94.

3. If the demand for product X is inelastic, a 4 percent increase in the price of X will:

i. decrease the quantity of X demanded by more than 4 percent.

j. decrease the quantity of X demanded by less than 4 percent.

k. increase the quantity of X demanded by more than 4 percent.

l. increase the quantity of X demanded by less than 4 percent.

4. If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then:

m. the price elasticity of demand is 0.44.

n. A is a complementary good.

o. the price elasticity of demand is 2.25.

p. A is an inferior good.

5. A perfectly inelastic demand schedule:

q. rises upward and to the right, but has a constant slope.

r. can be represented by a line parallel to the vertical axis.

s. cannot be shown on a two-dimensional graph.

t. can be represented by a line parallel to the horizontal axis.

6. The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a:

u. 1 percent reduction in price.

v. 12 percent reduction in price.

w. 40 percent reduction in price.

x. 20 percent reduction in price.

7. The price elasticity of demand of a straight-line demand curve...