Economics 101
Section 5-Alley
Spring 2002
Practice Exam 2
1. The price elasticity of demand measures the
a. responsiveness of a good’s price to a change in quantity demanded
b. adaptability of suppliers when a change in demand alters the price of a good
c. responsiveness of quantity demanded to a change in a good’s price
d. adaptability of buyers when there is a change in demand
e. responsiveness of quantity supplied to a change in quantity demanded
2. If a 20 percent decrease in the price of chicken results in a 10 percent increase in the quantity
demanded, the price elasticity of demand has a value of
a. -0.5
b. -2
c. -1
d. -0.1
e. none of these
3. Suppose that when the price of aspirin rises from $2 to $3 per bottle, the quantity demanded falls
from 800 bottles per day to 700 bottles per day. Over this range, the demand for aspirin is
a. Elastic
b. unitary elastic
c. perfectly elastic
d. Inelastic
e. perfectly inelastic
4. When demand is price elastic, a decrease in total expenditure on a good would result from a(n)
a. decrease in price
b. increase in quantity demanded
c. increase in price
d. decrease in income for an inferior good
e. increase in total revenue to the seller
5. For which of the following medical services is the income elasticity of demand likely to be the smallest?
a. face-lifts
b. plastic surgery
c. Manicures
d. emergency services after a car accident
e. hair transplants
6. The percentage change in demand divided by the percentage change in income is referred to as the
a. price elasticity of demand
b. income elasticity of demand
c. cross-price elasticity of demand
d. slope of the demand curve
e. demand curve
7. If the income elasticity of demand is negative, this means that the good is
a. an inferior good
b. at a lower than equilibrium price
c. provided by a monopoly producer
d. provided by competitive producers
e. a normal good
8. When there is a positive cross-price elasticity of demand between two goods,
a. they are independent goods
b. they are complementary goods
c. they are substitute goods
d. they are luxury goods
e. the income elasticity of demand is positive
9. If food is measured on the horizontal axis of a budget line diagram, and clothing is measured on the
vertical axis, the slope of the budget line
a. may be positive if the price of clothing is high enough
b. may be positive if the price of food is high enough
c. may be positive if income is large enough
d. equals minus the maximum consumption of food divided by the maximum consumption of
