Question

Q1

If the number of highway deaths among young people is roughly proportional to their beer consumption, and young people's elasticity of demand for beer is 1.5, then to decrease highway deaths of young people by 15 percent, taxes would need to be increased enough to increase the price of beer by

  

1%.

  

1.5%.

  

10%.

  

15%.

Q2

If the price elasticity of demand is equal to zero and the price was to rise, the quantity demanded would

  

decrease slightly.

  

fall to zero.

  

not change.

  

increase.

Q3

________ is a cost that is independent of the quantity produced by the firm and is incurred by the firm in the short run.

  

Average total cost

  

Economic cost

  

Variable cost

  

Fixed cost

Q4

Which of the following statements is INCORRECT?

  

The price elasticity of demand tends to be greater when a product accounts for a smaller portion of the consumer's budget.

  

The price elasticity of demand tends to be greater for a specific brand of a product than for a product in general.

  

The price elasticity of demand tends to be greater for a product with more substitutes available.

  

The price elasticity of demand tends to be smaller when consumers have less time to adjust to price changes.

1 points   

Q5

Recall the Application about the increase in Chinese demand for pecans to answer the following question(s). Between 2006 and 2009, Chinese imports of U.S. pecans increased from 9 million pounds per year to 88 million pounds per year, and as a result of the increase in demand, the equilibrium price increased by about 50 percent. The increase in demand was caused in part by widespread reports in the Chinese media extolling the health benefits of pecans.

According to the Application, one reason for the increase in Chinese demand for pecans was

  

an increase in consumer preferences.

  

a decrease in income.

  

an increase in the price of walnuts, a substitute good.

  

the expectation of higher future prices.

Q6

The slope of a nonlinear curve

  

is constant.

  

is zero.

  

is negative.

  

changes along the curve.

Answer 1

1) option 3) 10%

e = %∆ in Q/ %∆ in P

%∆ in P = 15/1.5 = 10%

2) option 3)

For perfecfly inelastic demand, Elasticity = 0

So Quantity doesn't change, bcoz demand curve is Vertical

3) option 4)

Fixed cost

4) option 1)

Demand is more Elastic, when more Substitutes are available

It is inelastic, when total spending on that good is smaller portion of budget

5) option 1)

Rise in preferences of consumers

6) option 4)

For non linear curve, slope is not constant, it varies along curve