Directions:Each of the questions or incomplete statements below is followed by five suggested answers or completions. Select the one that is best in each case and write the correct letter of your anwer in the space provided for.

___1. Cross-price elasticity measures whether:

A. goods are normal or inferior.

B. two goods are substitutes or complements.

C. demand is elastic or inelastic.

D. supply is steeper than demand or vice versa.

E. All of the above

___2. Connie Mix is a consultant to Vidget Corp. He tells them that their product, Vidgets, is an inferior good. He would make this claim if he believed that the product had:

A. an income elasticity greater than zero.

B. an income elasticity less than zero.

C. a price elasticity of supply greater than one.

D. a price elasticity of supply less than one.

F. None of the above

___3. In January of 1999 the U.S. Post Office raised the price of mailing a first class letter from 32 to 33 cents, an increase of about 3%. If the Post Office faces a section of its demand curve that is elastic, one can predict that revenues will:

A. increase by more than 3%.

B. increase by 3%.

C. increase, but by less than 3%

D. decrease.

E. None of the above

___4. If demand is inelastic and price decreases then total revenue will

A. Rise

B. Fall

C. Remain constant

D. Equal one

E. None of the above

___5. Austudy raises student allowances from $150 to $165 per week.This leads to an average increase from 8 to 10 coffees consumed per week from a sample of students.This indicates that income elasticity is

A. Elastic with a coefficient of 3.4

B. inelastic with a coefficient of 1.8

C. Elastic with a coefficient of 2.5

D. inelastic with a coefficient of 0.4

E. None of the above

___6. If the price elasticity of demand coefficient equals 2, this means a 10 percent increase in price will result in a 20 percent decrease in the quantity demanded.

A. True B. False C. Incomplete information D. Either A or B E. Neither a nor B

___7. If the managers of the bus system found that revenues increase when fares are raised, they would conclude that price elasticity demand for subway service is inelastic.

A.True B. False C. Incomplete information D. Either A or B E. Neither a nor B

___8. If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is:

A. elastic.

B. inelastic.

C. perfectly inelastic.

D. unitary elastic.

E. None of the above

___9. Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is

A.0B.1C.6.D.36.E. None of the above

___10. .If a 6 percent increase in income results in a 10 percent increase in the quantity demanded of pizza, then the income elasticity of demand for pizza is

A. negative and therefore pizza is an normal good.

B. negative and therefore pizza is a inferior good.

C. positive and therefore pizza is an inferior good.

D. positive and therefore pizza is a normal good.

E. None of the above

___11.The cross-price elasticity of demand can tell us whether goods are

A. normal or inferior.B.elastic or inelastic.

C.luxuries or necessitiesD.complements orsubstitutes E. None of the above

___12. The price of the Good B increases by 20% causing the 10% fall in the demand for the Good A. What is the Cross Elasticity of Demand?

A. +0.5B. -0.5C. +2D. -2E. 0

___13. Which of the following goods would you expect to have the largest income elasticity of demand?

A. rice.B. toothpaste.C. beer.D. stereo equipment.E. newspapers.

___14. The cross price elasticity between two products is found to be -1/2. From this you know that the two products are:

A. normal.B. inferior.C. necessities.D. complements.E. substitutes.

___15. If the cross price elasticity between goods B and A is -2 and the price of good B increases by 5%, the quantity demanded of good A will:

A. increase by 5%

B. increase by 10%

C. decrease by 2%

D. decrease by 5%

E. decrease by 10%