Choose the correct answer for each question.

1. A normal good can be distinguished from an inferior good because a

normal good has

A. ? A positive income elasticity of demand

B. ? A positive cross price elasticity of demand
C. ? A negative income elasticity of demand
D. ? A positive price elasticity of demand

2. If the demand is perfectly elastic, the elasticity of demand is ___and the

demand curve is ___

A. ? Zero, vertical
B. ? Infinite, vertical
C. ? Infinite, horizontal
D. ? Zero, horizontal

3. The price elasticity of demand for British built computers in foreign

markets is estimated to be 2. A fall in the exchange rate lowers the foreign
prices of these computers by 10%. Assuming the British computer industry
has unemployed resources, the lower exchange rate will result in the
number of computers exported rising by

A. ? 5%
B. ? 8%
C. ? 20%
D. ? 10%

4. Which of the following statements about price elasticity of supply is

correct?

A. ? Elasticity of supply will be higher when existing factor

resources are being fully utilised
B. ? Elasticity of supply is normally negative rather than positive
 C. ? Elasticity of supply is higher when a producers' stock levels
are fairly high
D. ? Elasticity of supply is lower the longer the time period involved

5. When the price of a DVD version of a new film is 12 per unit, 180,000
DVDs are demanded each week. The manufacturer estimates that the
price elasticity of demand is (-) 1.4. If the price of the DVD were cut by 3,
how many DVDs would be demanded at the new price?

A. ? 243,000
B. ? 220,000
C. ? 215,000
D. ? 200,000

6. If the price elasticity of demand for butter is 2, a 1% decrease in the price

of butter will

A. ? Increase the quantity demanded by 2%

B. ? Reduce the quantity demanded by half
C. ? Double the quantity demanded
D. ? Increase the quantity demanded by 0.5%

7. Ratko loves truffles. As the price of a truffle increases from 50p to 60p,
Ratko continues to buy a dozen truffles every week. Ratko's demand for
chocolate truffles is

A. ? Elastic
B. ? Perfectly inelastic.
C. ? Unit elastic
D. ? Illustrated by a horizontal demand curve.

8. A manufacturer reduces the price of his washing machines by 5% and, as

a result, the volume of sales of washing machines rises by 4%. The price
elasticity of demand for the good is

A. ? -1.25
 B. ? -1.0
C. ? -0.8
D. ? Indeterminate from available information

9. The demand for frozen orange juice is found to have a price elasticity of
demand equal to 1.8. If there is a severe frost which destroys large
quantities of oranges we expect to see

A. ? An increase in the market price and no change in spending

B. ? A fall in the market price and a rise in spending on orange
juice
C. ? A rise in the market price and a fall in spending on orange
juice
D. ? No change in the market price and no change in spending

10. A mobile telephone company reduces its charges by 15% and finds that
demand for calls rises by only 6%. Which of the following would describe
the price elasticity of demand?

A. ? It is inelastic
B. ? It is elastic
C. ? It is perfectly inelastic
D. ? Elasticity of demand = unity (1)