ISU ECON 101 - Econ101Exam2-Blue-S17-Key (6 pages)

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Econ101Exam2-Blue-S17-Key



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Econ101Exam2-Blue-S17-Key

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Pages:
6
School:
Iowa State University
Course:
Econ 101 - Prin Microeconomics

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Econ 101 Section 5 S17 Schroeter Exam 2 Blue Choose the single best answer for each question Do all of your scratch work on the exam 1 If the cross price elasticity of demand for good X with respect to the price of good Y is positive it means that goods X and Y are substitutes b complements c both normal goods d both inferior goods 2 Which of the following statements about elasticity is true a An elasticity is a ratio of percentage changes b The elasticity of variable X with respect to changes in variable Y is independent of the units used to measure X and Y c Along a linear downward sloping demand curve slope is constant but elasticity is not All of the above are true 3 When Lester the barber charged 15 for men s regular haircuts he did 17 haircuts per day on average Now that he has raised his price to 18 for men s regular haircuts his business volume has dropped off to 12 haircuts in an average day Over this range of prices the elasticity of demand calculated by the midpoint method for Lester s haircuts is 1 90 b 1 47 c 0 68 d 0 53 4 In the competitive market for a particular good when supply increases we observe that equilibrium quantity increases by 20 and total revenue of the good s sellers increases by some percentage less than 20 Based on this information we can conclude that a the demand for the good is inelastic the demand for the good is elastic c the demand for the good is unit elastic d None of the above We cannot reach a conclusion without knowing the exact percentage change in total revenue 5 In the competitive market for widgets when demand increases we observe that equilibrium price increases by 10 while equilibrium quantity increases by 20 Based on this information we can conclude that a the demand for widgets is elastic b the demand for widgets is inelastic the supply of widgets is elastic d the supply of widgets is inelastic 1 6 A good will tend to have less elastic demand a the greater the availability of close substitutes the more it is regarded to be a necessity c the more narrowly the good is defined d in the long run than in the short run 7 The world s production of crude oil is responsive to changes in the price of oil If the price goes up oil companies can respond immediately by simply increasing production from existing oil wells But there are limits on how much production can be increased using existing wells only Increasing production beyond these limits requires that oil companies engage in timeconsuming exploration for new reserves of crude oil The implication of this statement is that a the demand for crude oil is more elastic in the short run than in the long run b the demand for crude oil is more



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