Introduction to Economics

(Code 102341)
Universitat Autònoma de Barcelona
Fall 2021

Multiple Choice Test Theme 3.

The following are multiple-choice questions. Choose the response you think is correct. Please
take note of the marking scheme: correct answer = +1, no answer = 0, incorrect response
= −0.25

1. The price elasticity in a linear demand curve (with a negative slope):

a) Is constant and independent of the price of the good.
b) Is greater the higher the price of the good.
c) Is greater the lower the price of the good.
d) On a linear demand curve the price elasticity is always equal to one.
2. The price elasticity of demand for a commodity tends to be higher when:
a) The number of substitutes available for the good increases.
b) The income of consumers increases.
c) The price elasticity of supply decreases.
d) The time horizon to adjust to changes is lower.
3. Consider two normal goods whose price increases by the same percentage in both cases:
the percentage variation in the quantity demanded would be higher for:
a) The good whose price elasticity is greater.
b) The good whose price elasticity is lower.
c) The good that is more expensive.
d) The good that is cheaper.
4. If the price of goods increased by 5% and the quantity demanded decreases by 10%:
a) The demand for the good is inelastic.
b) The income (of the supplier) decreases if the price increases.
c) The income (of the supplier) decreases if the price decreases.
d) The income (of the supplier) does not change when the price varies.
5. If a 2% decrease in the price of a particular good increases quantity demanded by 1%,
the price elasticity of demand is:
a) 4.
b) 2.
c) 1.
d) 0.5.

1
 6. If the market demand for a good is given by q = 24 − 6p and the supply by q = 2p.
What is the elasticity of demand and supply in equilibrium?
a) 2 and 2.
b) 1 and 2.
c) 3 and 1.
d) 5 and 1.

7. We know that demand for cherries is highly inelastic. We can therefore conclude that
a poor harvest that reduces the cherry harvest will:
a) Adversely affect the quality of life of farmers by making their farms less profitable.
b) Increase the total income of farmers.
c) Reduce the total income of farmers.
d) Causes a shortage of cherries as demand for cherries is greater than the supply at
the market equilibrium price.

8. If the demand for a commodity is given by 2q = 10 − p.

a) The price elasticity of demand at the point q = 1, p = 8 is 4.
b) The price elasticity of demand at the point q = 1, p = 8 is 0.5.
c) At the point q = 1, p = 8 demand is inelastic.
d) The price elasticity of demand is constant throughout the entire demand curve.

9. In the U.S., if tobacco consumption among adolescents has not dropped by 60 percent
by the year 2007, the tobacco companies will have to pay a fine of 2,000 million dollars
in application of the agreement on the Tobacco act of 1997. The agreement is expected
to raise prices of cigarettes by about 62 cents per pack, which represents a percentage
increase of 25 percent. Will this price increase be sufficient to reduce consumption by
the amount required? Note: it is estimated that the price elasticity of demand for
cigarettes among adolescents is 1.3.
a) No, because the demand is inelastic therefore the decline will be less than 25%.
b) Yes, as the demand for tobacco among young people is elastic.
c) No, the demand for tobacco will be reduced by 32.5% less than desired.
d) Yes, as the demand for tobacco will decrease by 80,6%.

10. Suppose the price elasticity of demand for movies of adolescents is 0.2 and that of
adults is 2. What policy will a cinema implement to increase total revenues?
a) Increase the price of admission for adolescents and decrease that of adults.
b) Increase the price of admission.
c) Reducing the price of admission.
d) Increase the price of admission for adults and decrease those of adolescents.

11. The aggregate demand for good q is given by q = 600 − 20p where p denotes the price.
Choose the correct answer.
a) Along the demand curve the price elasticity is constant.

2
 b) For any p ≥ 10 the price elasticity of demand is more than or equal (in absolute
value) to 0.5.
c) For any p ≥ 10 the price elasticity of demand is more than or equal (in absolute
value) to 20.
d) For any price p ≤ 10 the elasticity of demand is more than or equal (in absolute
value) to 0.5.

12. The price elasticity of demand is 2 (in absolute value) when p=q. If q= 15, what is
the value of the price such that the price elasticity of demand is 1 (in absolute value)?
a) 2
b) 0,5
c) 7,5
d) 15

13. Suppose the local soccer team decides to provide a discount on tickets for every 20
rings cans of Coca-Cola that people present. Cost of Admission is 30 euros and with
the discount it costs 10 euros. If both the income from tickets sold as well as income
from Coca-Cola increases, which of the following statements is correct:
a) The demand for Coca-Cola is elastic, but the price elasticity of demand for tickets
for soccer cannot be determined.
b) Demand for Coca-Cola is inelastic, but the price elasticity of demand for tickets for
soccer cannot be determined.
c) Demand for tickets for soccer is elastic, but the price elasticity of demand for Coca-
Cola cannot be determined.
d) Demand for soccer tickets is inelastic, but the price elasticity of demand for Coca-
Cola cannot be determined.

14. Suppose the market demand is given by q = 100 − 2p and that initially the price is
p = 25. If the price decreases:
a) Income decreases.
b) Income increases.
c) There is no variation in income.
d) None of the above is correct.

15. Suppose the market demand is given by q d = 29−2p. Which of the following statements
is correct?
a) When p = 2, if the price increases by 1%, the quantity demanded increases by
0.16%.
b) The market demand is inelastic for any price higher than 2.
c) The price elasticity of demand is constant regardless of the price, since the slope of
the demand function is constant.
d) None of the above is correct.

3
16. A company sells two goods A and B, the price elasticities of demand (in absolute value)
are respectively 0.3 and 1. If the company wants to increase its total sales revenue, the
firm should:
a) Raise the price of B and lower the price of A.
b) Increase the price of A and keep the price of B.
c) Reduce the price of A and keep the price of B.
d) Produce more of both goods.

17. Suppose that a certain good has a linear demand function. Qhich of the following
statements is true?
a) The price elasticity of the demand as an absolute value increases with the price
increase.
b) The price elasticity of the demand is constant at any point of the demand function.
c) The price elasticity of the demand decreases with the increase of price.
d) To know if the price elasticity of the demand (as an absolute value) increases or
decreases, we need to know the exact function of the demand.

18. The demand of one good is given qd = 30 − 2p. Which of the following statements is
correct?
a) The price elasticity of the demand is unitary when the price equals to 10.
b) The demand is inelastic for any price greater than 10.
c) The demand is elastic for any price greater than 10.
d) None of the above.

19. Which of the following is not correct:

a) The income elasticity of the demand shows us how the quantity demanded changes
depending of the variation of the consumers’ income.
b) The income elasticity of the demand shows us how the quantity demanded changes
depending of the variation of the price of the other good.
c) The income elasticity of the demand takes different values depending on the price
that we take into account when we calculate it.
d) When we deal with a linear demand function, the income elasticity of the demand
is always constant.

20. The demand for potatoes is given by D(p)=10-p and the current equilibrium price is
1,5e/kg. In this case if the equilibrium price increases a little bit( 5%), the revenues
of the producers of potatoes:
a) Will increase since we are at the inelastic part of the demand function.
b) Will increase since we are at the elastic part of the demand function.
c) Will decrease since we are at the inelastic part of the demand function.
d) Will decrease since we are at the elastic part of the demand function.

4
21. If the elasticity of supply is 0,6, and if the price of the good increases 20% the quantity
supplied:
a) Will be reduced by 20%.
b) Will increase by 12%.
c) Will increase by 14%.
d) None of the above is correct.

22. Suppose that the market demand for tomatoes is given by qd = 20 − 2p and the supply
is qs = 4 + 2p: Assuming that the market is in equilibrium, we can deduce that:
a) a marginal price increase will increase sellers’ revenues.
b) a marginal reduction in price will increase sellers’ revenue
c) a marginal change in price does not alter sellers’ income.
d) we do not have sufficient data to determine the effect on benefits.