Problem Set 1



Problem Set 3

Econ 202 (03, 04, and 05) Spring 2003

(Dr. Tin-Chun Lin)

1. At a price of $5, Sam buys 10 units of a product; when the price increases to $6, Sam buys 8 units. Martha says Sam’s demand has decreased. Is Martha correct?

A) Yes, Martha is correct. Sam’s demand has decreased.

B) No, Martha is incorrect. Sam’s demand has increased.

C) No, Martha is incorrect. Sam’s quantity demanded has decreased, and his demand has not changed.

D) No, Martha is incorrect. Sam’s quantity demanded has increased, and his demand has increased.

(Answer: (C))

2. Which of the following will not shift the demand curve for VCRs?

A) An increase in the price of VCRs.

B) An increase in consumer income.

C) An increase in the price of a compact disc player (a substitute).

D) An increase in the price of cable service (a complement).

(Answer: (A))

3. Which of the following must be true if good X is a normal good and income increase?

A) The demand for X will increase, and thus the price and quantity sold and bought will decrease.

B) The demand for X will decrease, and thus the price and quantity sold and bought will decrease.

C) The demand for X will increase, and thus the price and quantity sold and bought will increase.

D) The demand for X will decrease, and thus the price and quantity sold and bought will increase.

E) The demand for X will increase, and thus the price and quantity sold and bought will remain the same.

(Answer: (C))

4. Suppose the president of a college argues that a 25 percent tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attend this college is:

A) Elastic.

B) Inelastic, but not perfectly inelastic.

C) Unitary elastic.

D) Perfectly elastic.

(Answer: (B))

5. When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, then:

A) Demand is price inelastic.

B) Total revenue increases.

C) Demand is positively sloped.

D) Demand is unit elastic.

E) Total revenue decreases.

(Answer: (E))

6. (True or False) A change in demand causes prices and quantities to change in the same direction. (Answer: False)

7. (True or False) If demand is elastic, a price reduction will increase total revenue. (Answer: True)

8. (True or False) If two goods are complements, an increase in the price of one will cause in the demand for the other. (Answer: False)

9. Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20 percent more bikes, then demand for bicycles is:

A) Inelastic, and total revenue will increase.

B) Elastic, and total revenue will increase.

C) Inelastic, and total revenue will decrease.

D) Elastic, and total revenue will decrease.

E) Unit elastic, and total revenue will remain the same.

(Answer: (B))

10. If the value of the price elasticity of demand is 0.2, this means that a:

A) 20 percent decrease in price causes a 1 percent increase in quantity demanded.

B) 0.2 percent decrease in price causes a 1 percent increase in quantity demanded.

C) 5 percent decrease in price causes a 1 percent increase in quantity demanded.

D) 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded.

E) 100 percent decrease in price causes a 200 percent increase in quantity demanded.

(Answer: (C))

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