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CU-Boulder ECON 2010 - Recitation problem set 3

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Worksheet #31. For goods that absorb a ______ share of the typical consumer's spending, the _______ effect is essentially the sole reason why the demand curve slopes downward.A. large; substitution effectB. small; substitution effectC. small; income effectD. large; marginal utility effect2. Price elasticity of demand measures the responsiveness of:A. quantity demanded to changes in product quality.B. quantity demanded to changes in income.C. quantity demanded to changes in price.D. supply to changes in demand.3. If the price of chicken rises from $3.50 per pound to $4.50 per pound and Safeway observes the quantity demanded decline from 11,000 pounds sold to 9,000 sold, what is the price elasticity of demand using the midpoint method?A. 0.8B. 0.78C. 1.25D. 1.284. During a drought, the price elasticity of demand for water is less than one. During a flood, the price elasticity of demand for water is greater than one. This means that the:A. demand for water is elastic during a drought and inelastic during a flood.B. demand for water is inelastic during a drought and elastic during a flood.C. demand curve for water cannot have a constant slope.D. quantity of water people choose to consume is independent of the price.5. If the price elasticity of demand (calculated using the mid-point method) for a good is 2.5, andthe price of the good rises from $18 to $22, then the quantity demanded will:A. decrease by 8 percent.B. decrease by 25 percent.C. decrease by 50 percent.D. increase by 2.5 percent.6. Assume that after graduation, you land a marketing job with Canon in the digital camera division. After introducing a new digital camera, you estimate that the price elasticity of demand for the camera equals 2 and the income elasticity is equal to 0.5.Furthermore, the cross-price elasticity with a similar Kodak camera is equal to 1.25. Based on this elasticity information, you would conclude for the new Canon camera:A. the product demand is elastic and if your firm (Canon) increases the price of its new camera, total revenues will increase.B. the product demand is elastic and if your firm (Canon) decreases the price of its new camera, total revenues will increase.C. the product demand is inelastic and if your firm (Canon) increases the price of its new camera, total revenues will increase.D. the product demand is inelastic and if your firm (Canon) decreases the price of its new camera, total revenues will increase.7. Assume the cross-price elasticity of demand for Coke and Pepsi is equal to 3. If Pepsi raises its price by 10%, then the quantity of:A. Coke demanded will increase by 30%.B. Coke demanded will decrease by 30%.C. Pepsi demanded will increase by 30%.D. Pepsi demanded will decrease by 30%8. Which of the following goods would you expect to be income-inelastic?A. food.B. diamonds.C. international travel.D. a second home.9. Michelle's purchases of shoes increase by 10% when her income increases by 20%. Based on this information, we know that:A. shoes are a normal good.B. the price of shoes has decreased.C. shoes are an inferior good.D. shoes have many


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CU-Boulder ECON 2010 - Recitation problem set 3

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