Question

1)Consider two developments in the market for coal. The development of new mining technology is reducing costs. At the same time, electric utilities, a major buyer of coal, are switching natural gas due to the falling prices of natural gas. What is the consequence in the market given these 2 simultaneous changes? (note: since these 2 changes are occurring simultaneously, both the supply and demand curves could be changing)

Coal prices will definitely fall

Coal price will definitely increase

Coal prices could increase or fall depending on the magnitude of the changes in supply and demand

Question 2

Suppose Josh’s elasticity of demand for hamburgers is -1.25. If the price increased 25%, how would Josh's hamburger purchases change?

increase hamburger purchases by 31.25 percent

decrease hamburger purchases by 31.25 percent.

increase hamburger purchases by 20.1 percent

decrease hamburger purchases by 20.1 percent

increase hamburger purchases by 1.25%

decrease hamburger purchases by 1.25%

Question 3

Suppose the price of steak dropped from $10.00/lb to $9.00/lb. If steak is inelastic over this range, we would expect

Total revenue of steak to fall

Total revenue of steak to increase

Total revenue for steak to increase or decrease (can’t tell with the available information).

Question 4

If the elasticity of demand for carpet is -1.5, then a 5% price increase will

Decrease quantity demanded by 2.5%

Decrease quantity demanded by 7.5%

Decrease quantity demanded by 15%

Increase quantity demanded by 2.5%

Increase quantity demanded by 7.5%

Increase quantity demanded by 15%

Question 5

Last year Emma bought 9 pairs of dress shoes. This year she received a 10% raise and bought 11 pairs of shoes. What is Emma’s income elasticity of demand for shoes?

20%

0.5

2

-1.0

10

Question 6

Last year Emma bought 5 pairs of dress shoes a year. This year she received a 10% raise and bought 6 pairs of shoes. Emma considers shoes a(n):

Normal Good

Inferior Good

Elastic Good

Inelastic Good

Question 7

Apple just found out that, the iphone 6 in Mexico has an elastic demand. If they want to increase revenue, what do you think they should do?

Decrease the price of iphone 6

Increase the price of iphone 6

Leave the price unchanged

Question 8

Assume the demand elasticity of chocolate is constant and equal -1.0. What will happen to the chocolate sales revenue of Nestle, if the price of chocolate increases?

It will increase

It will decrease

The change in revenue will be uncertain

Revenue will not change

Question 9

Given that the demand curve for good X is horizontal. What do you think will be the elasticity of demand?

Elastic

Perfectly elastic

Inelastic

Constant elastic

Perfectly inelastic

Question 10

We all know Virginia Tech alumni always support VT’s football team. They buy football tickets (and sell out Lane Stadium) to support their favorite team. What do you think the price elasticity of Virginia Tech’s football ticket will be?

Elastic

unitary elastic

Need more information

Inelastic

  

Answer 1

1. The correct answer is: a)

Reason:

In the diagram above, supply increases due to reduction in the costs. Simultaneously, demand for coal decreases. At the new equilibrium E1, price of coal definitely falls. However, the impact on demnde is uncertain. The demand for coal may increase/decrease/remain constant.

Thanks!