Tackle the Test: Multiple-Choice Questions

1. Question

   Which of the following statements is true?

   
   

   
   

   1. When a good absorbs only a small share of the typical consumer’s income, the income effect explains the demand curve’s negative slope.

      
      
   
   

   2. A change in consumption brought about by a change in purchasing power describes the income effect.

      
      
   
   

   3. In the case of an inferior good, the income and substitution effects work in opposite directions.

      
      
   
   

   A.

   I only

   B.

   II only

   C.

   III only

   D.

   II and III only

   E.

   I, II, and III

   Which of the following statements is true?

2. Question

   If there is an increase in the price of an inferior good on which consumers spend a large share of their income, which of the following will decrease the quantity of that good demanded?

   A.

   the Giffen effect

   B.

   the income effect only

   C.

   the substitution effect only

   D.

   the income effect and the substitution effect

   E.

   neither the income effect nor the substitution effect

   If there is an increase in the price of an inferior good on which consumers spend a large share of their income, which of the following will decrease the quantity of that good demanded?

3. Question

   If a decrease in price from $2 to $1 causes an increase in quantity demanded from 100 to 120, using the midpoint method, price elasticity of demand equals

   A.

   0.17.

   B.

   0.27.

   C.

   0.40.

   D.

   2.5.

   E.

   3.72.

   If a decrease in price from $2 to $1 causes an increase in quantity demanded from 100 to 120, using the midpoint method, price elasticity of demand equals

4. Question

   Which of the following is likely to have the highest price elasticity of demand?

   A.

   eggs

   B.

   beef

   C.

   housing

   D.

   gasoline

   E.

   foreign travel

   Which of the following is likely to have the highest price elasticity of demand?

5. Question

   If a 2% change in the price of a good leads to a 10% change in the quantity demanded of a good, what is the price elasticity of demand?

   A.

   0.02

   B.

   0.2

   C.

   5

   D.

   10

   E.

   20

   If a 2% change in the price of a good leads to a 10% change in the quantity demanded of a good, what is the price elasticity of demand?